# Top sentences----------------------------------# Build embedding matrix# Convert to data.tablebert_dt <-as.data.table(bert_df)# Expand bert_embedding_concat list into separate columns# Assume each embedding is length 3072bert_dt <- bert_dt[, as.data.table(do.call(rbind, embedding))]bert_dt$new_cluster <- bert_df$new_cluster# Calculate mean of each dimension by new_clustercluster_centroids <- bert_dt[, lapply(.SD, mean), by = new_cluster]# Ensure embedding columns are correctly selectedembedding_cols <-setdiff(names(bert_dt), "new_cluster")# Build paragraph matrix with sentence_id as row namessentences_mat <-as.matrix(bert_dt[, ..embedding_cols])rownames(sentences_mat) <- bert_df$sentence_id# Build centroid matrix with new_cluster as row namescentroid_mat <-as.matrix(cluster_centroids[, ..embedding_cols])rownames(centroid_mat) <- cluster_centroids$new_cluster# Calculate cosine similarity between sentences and centroids#similarity_matrix <- text2vec::sim2(x = paragraph_mat, y = centroid_mat, method = "cosine", norm = "l2")# Get the list of clustersclusters <-unique(bert_dt$new_cluster)bert_dt$window <- bert_df$windowbert_dt$sentence_id <- bert_df$sentence_id# Set how many top sentences you wanttop_n <-50# Run similarity search per cluster and per windowtop_sentences_from_cluster_window <-map_dfr(clusters, function(cluster) {# Filter sentences for this cluster cluster_sentences <- bert_dt[new_cluster == cluster]# Get unique time windows in this cluster time_windows <-unique(bert_dt[new_cluster == cluster]$window)# Extract the centroid for this cluster centroid_vec <- centroid_mat[cluster, , drop =FALSE]# Run similarity search per time windowmap_dfr(time_windows, function(time_window) {# Select sentences in this window window_sentences <- cluster_sentences[window == time_window]if (nrow(window_sentences) ==0) return(NULL) # Skip empty groups window_mat <-as.matrix(window_sentences[, ..embedding_cols])rownames(window_mat) <- window_sentences$sentence_id# Calculate cosine similarity for this window sim_vec <- text2vec::sim2(x = window_mat, y = centroid_vec, method ="cosine", norm ="l2")[, 1]# Get top N most similar sentences in this window top_idx <-order(sim_vec, decreasing =TRUE)[1:min(top_n, length(sim_vec))]data.table(new_cluster = cluster,window = time_window,sentence_id =names(sim_vec)[top_idx],similarity = sim_vec[top_idx],rank =1:length(top_idx) ) })})top_sentences_from_cluster_window <- top_sentences_from_cluster_window %>%mutate(sentence_id =as.integer(sentence_id)) %>%left_join(select(bert_df, sentence_id, sentence, publication_year)) %>%mutate(mention_rationality =str_detect(sentence, regex("(^| )rational", ignore_case =TRUE)),similarity =round(similarity, 3))rm(bert_df, bert_dt)
The cluster gathers 457 sentences from our corpus. It represents 0.28% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are Walton H. Hamilton (18 sentences), F. Y. Edgeworth (17 sentences), F. W. Taussig (13 sentences), H. J. Davenport (12 sentences), L. L. Price (12 sentences), H. Parker Willis (10 sentences), J. M. Clark (10 sentences), Lewis H. Haney (10 sentences), Frank A. Fetter (9 sentences), Jacob H. Hollander (9 sentences).
The most recurring journals are Journal of Political Economy (159 sentences), The Quarterly Journal of Economics (114 sentences), The Economic Journal (103 sentences), The American Economic Review (81 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
commission
0.0012187
tariff
0.0006481
mill’s
0.0006304
court
0.0005988
judicial
0.0005382
commerce
0.0005371
public_opinion
0.0004990
expediency
0.0004861
legislation
0.0004861
writer
0.0004779
legislators
0.0004689
sound_economic
0.0004459
speculator
0.0004242
taxation
0.0004237
dictum
0.0004036
evils
0.0003992
evil
0.0003880
liberty
0.0003836
free_trade
0.0003656
economic_motive
0.0003652
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
NOTES AND MEMORANDA 439 I need not add that, upon almost all the subjects treated in my article, I was glad to be able to appeal to the authority of such a work as the Principles of Economics.
Yet owing to the fact that in the course of two decades numerous cases involving the same principles have come before the Commission for adjudication, and that conclusions reached on the basis of unsound reasoning have failed to give satisfaction and have had to be corrected, it is believed that a study of the cases will throw much light on economic tendencies at work to establish the truth of fundamental principles., Certainly experience is the only safe method for testing our theoretical conclusions, and Mill’s dictum that ” practice long precedes science ” should hold true in this field of inquiry, as in other departments of human affairs.
Our author does not make a wholly satisfactory reply to these pertinent interrogations by pointing to the vis inertiae, or to the active opposition, hindering such change, even when these can be correctly called, in his descriptive phrase, “non-economic.”
So far have economics and law parted company, under the persuasive influence of attorneys, accountants, and engineers.99 A critical analysis of these statements and indeed of the paper considered as a whole will ireveal, in my judgment, two weak links in the chain of reasoning.
From the standpoint of practical politics, perhaps, logic and precedent are at the present time of no great significance; but the situation furnishes a forcible text for insisting upon careful and accurate thinking in legislating upon the complex financial and industrial problems of the present day.’
If the individual is not the best judge of his interests, it may still be held that his mistakes have nothing to do with the industri system, but arise out of a wholly separate compartment of life, the domain of the student of ethics, the inner shrine of the inde?
This part of the paper is critical and destructive, because it is necessary to get rid of unsound or insufficient or unimportant arguments before we can “see the wood for the trees.
Since activities set up in this way through appeal to higher and lower motives are no longer conceived to represent simply a mechanically adequate effect of the stimuli, working under the control of natural laws that tend to one beneficent consummation, therefore the outcome of activity set up even by the normal pecuniary stimuli miay take a form that may or may not be serviceable to the community.
The reply to the objection involved in the first instance is that actions to become economic must be not merely affected by economic considerations, but controlled by them.
Let any policy be imposed at the present day the consequences of which are recognized by the general public as resulting in serious cu tailment of present enjoyments in the interest of a most distant future; and one would not have to be a cynic to predict an uprising of the individual against the organs of social control.
It is easy for a critic to point out difficulties of practicability, of equity, or of economic propriety, in almost any scheme; but we are faced with a dangerous situation, and we have to make a choice whether we like it or not.
Even as rational economic judgment depends upon the tagging of every commodity with a definite price, so it also depends upon the tagging of every act with a definite legal value.
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
NOTES AND MEMORANDA 439 I need not add that, upon almost all the subjects treated in my article, I was glad to be able to appeal to the authority of such a work as the Principles of Economics.
Yet owing to the fact that in the course of two decades numerous cases involving the same principles have come before the Commission for adjudication, and that conclusions reached on the basis of unsound reasoning have failed to give satisfaction and have had to be corrected, it is believed that a study of the cases will throw much light on economic tendencies at work to establish the truth of fundamental principles., Certainly experience is the only safe method for testing our theoretical conclusions, and Mill’s dictum that ” practice long precedes science ” should hold true in this field of inquiry, as in other departments of human affairs.
So far have economics and law parted company, under the persuasive influence of attorneys, accountants, and engineers.99 A critical analysis of these statements and indeed of the paper considered as a whole will ireveal, in my judgment, two weak links in the chain of reasoning.
In point of economic theory the law appears on examination to be of slight consequence, but it merits further attention for the gravity of its purport.
Our author does not make a wholly satisfactory reply to these pertinent interrogations by pointing to the vis inertiae, or to the active opposition, hindering such change, even when these can be correctly called, in his descriptive phrase, “non-economic.”
This case has been frequently quoted as authority for the proposition that mere power over the market does not condemn a combination, but the decision, as a matter of fact, was based upon peculiar facts in the case which caused the combination to promote rather than to hinder competi?
Although this idea has certainly been in use for more than two centuries, it has grown in importance in recent years; and the fullblown theory is elaborated at length in several texts, both legal and economic.
It is easy for a critic to point out difficulties of practicability, of equity, or of economic propriety, in almost any scheme; but we are faced with a dangerous situation, and we have to make a choice whether we like it or not.
The case for the policy of ” the three F’s” is stated with his usual persuasive power by Cairnes in an essay already referred to, and his arguments are substantially repeated in the Report of the Bessborough Commission.?
The cluster gathers 1561 sentences from our corpus. It represents 0.96% of all the sentences selected over the whole period.
The community exists from 1900 to 1949.
The most recurring authors are Frank H. Knight (92 sentences), Wesley C. Mitchell (75 sentences), Talcott Parsons (68 sentences), Z. Clark Dickinson (62 sentences), A. B. Wolfe (31 sentences), Frank A. Fetter (27 sentences), J. M. Clark (23 sentences), Rexford G. Tugwell (20 sentences), Theo Surányi-Unger (17 sentences), Jacob Viner (15 sentences).
The most recurring journals are The Quarterly Journal of Economics (364 sentences), Journal of Political Economy (337 sentences), The American Economic Review (295 sentences), The Economic Journal (136 sentences), Economica (101 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
economic_motive
0.0011559
satisfaction
0.0010535
hedonism
0.0009697
economic_motives
0.0008307
hedonistic
0.0007489
pleasure
0.0007086
satisfactions
0.0007005
instincts
0.0006582
economic_motivation
0.0006074
human_nature
0.0005493
instinct
0.0005254
motive
0.0005182
psychology
0.0005130
psychologist
0.0005026
pain
0.0004969
motives
0.0004690
desires
0.0004396
men’s
0.0004391
psycho
0.0004067
economic_welfare
0.0003798
Top TF-IDF terms describing the community for each time window
Top terms 1900-1919
Token
TF-IDF
instincts
0.0036938
hedonistic
0.0033904
economic_motive
0.0032515
psychology
0.0027526
hedonism
0.0024203
instinct
0.0022135
human_nature
0.0021461
psychologist
0.0018287
pleasure
0.0016023
men’s
0.0015672
economic_motives
0.0015331
modern_psychology
0.0014914
human_conduct
0.0013734
pain
0.0013129
exigencies
0.0012530
Top terms 1920-1939
Token
TF-IDF
satisfaction
0.0027546
hedonism
0.0016598
satisfactions
0.0015026
human_nature
0.0013438
human_motives
0.0012274
pleasure
0.0011302
desires
0.0011179
hedonistic
0.0011160
economic_motives
0.0010814
modern_psychology
0.0010739
economic_motive
0.0010406
psychology
0.0010143
pain
0.0009724
psycho
0.0008919
enjoyment
0.0008644
Top terms 1940-1949
Token
TF-IDF
economic_motivation
0.0018966
economic_motive
0.0018088
economic_motives
0.0015077
economic_welfare
0.0013279
satisfaction
0.0011902
peace
0.0010254
scarce_means
0.0008518
human_motivation
0.0008415
moral_sentiments
0.0008278
nations
0.0008235
economic_progress
0.0008217
desires
0.0007729
motive
0.0007635
masses
0.0007630
sentiments
0.0007542
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
To be sure the development of character and activities forms the non-rational basis of economic rationality in the narrower sense; it forms the source of the ” higher ” wants which cannot themselves be criticized merely in rational terms.
It may be suspected that those who credit “modern psychology” with having undermined “general economic theory” do not always trouble to distinguish the various possible meanings of the term “rational.”
It should be emphasized that the concept of economic rationality as efficiency in the use of given means to achieve given individual or group ends excludes a large part of the purposive life of men as social beings-the ideal as well as the actual.
The beginning of any rational approach to the problems must be recognition that there are universal principles of “economy”–as indeed our author recognizes in his next sentence, which contrasts “the general principle of maximizing satisfaction which is valid” and “everywhere works in practice” with “more particular and less general propositions,” the validity of which in cultures other than our own remains in question.
In separating rational from irrational preference it is necessary to go behind the motivation of the consumer as expressed merely by his distribution of resources between different wants and into the nature of the motivation itself.
For example, to find the basis of economic rationality in the development of a social institution directs our attention away fromi that dark subjective realm, where so many economists have groped, to an objective realm, where behavior can be studied in the light of common day.
There are countless acts and motives, entering into price formation, which have a bearing on the economic welfare of men, but which are quite lost sight of or are glossed over in merely pecuniary calculations.
Finally, economics makes a definite assumption about the type of human behavior involved in the whole process- namely that it is, in limiting type, rational in the limited sense that, given the “end,” maximization of utility through acquisition of the largest possible quantity of means to wantsatisfaction compatible with the limitations of “cost,” the adaptation of means to this end tends to be the best possible under the circumstances.3 The end may thus, in the given circumstances, be held to determine the course of action.
It must find the roots of activity in instinct, impulse, and other qualities of human nature; it must recognize that economy forbids the satisfaction of all instincts and yields a dignified place to reason; it must discern in the variety of institutional situations impinging upon individuals the chief source of differences in the content of their behavior; and it must take account of the limitations imposed by past activity upon the flexibility with which one can act in future.
The processes of their expression or attainment, on the other hand, he thinks of as rational, resting on a knowledge of the conditions under which action takes place.1 Secondly, Veblen criticizes the orthodox economics as logically dependent on hedonistic psychology.
Moreover, it is clear that the current tendency to abandon the crude hedonistic conception of economic motive, and to recognize that man’s economic action is, in part, habitual if not instinctive, altruistic and constrained, admirable as it may be, does not essentially alter this conception of problem or method; nor is this alteration achieved by the tendency to a more ultimate analysis of the conditions that underlie utility and cost in social, institutional, or even in historical terms.
The first need here is to distinguish between the conditions under which the economic motive, in its cruder and simpler expression, is, so to speak, taken for granted, and those conditions under which its operations are subject to conscious reflection.
Economic action does not begin before the moment when the decisions are made, first, which of the conflicting desires is to be satisfied; secondly, which thing of value, apt to satisfy this preferred desire, is to be secured; and, thirdly, to what extent it is to be secured.
If then individual judgments are not rational and instincts are non-dependable, Hobson can seek to accomplish a definite social purpose only upon the assumption of the possibility of rationality in collective judg?
As to rationality, we know that people usually are capable of following cause and effect in business far enough to see where they can get the most pay for what they have to sell.
Incidentally, the author makes an astonishingly naive statement about people agreeing on ends but disagreeing on means, implying that an end could be rationally favored apart from the condition that it is both possible and attainable at a cost which does not outweigh the gain-both gain and cost being usually complex in kind and degree.
The search for the real stimulus reveals the acquisitive tendency in man, standing as large as life in the place where the economists have assumed stood the rational quality which so directed conduct as to assure all-round beneficient results.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
Sentence
Title
Year
Journal
Authors
Centroid Similarity
For example, to find the basis of economic rationality in the development of a social institution directs our attention away fromi that dark subjective realm, where so many economists have groped, to an objective realm, where behavior can be studied in the light of common day.
It must find the roots of activity in instinct, impulse, and other qualities of human nature; it must recognize that economy forbids the satisfaction of all instincts and yields a dignified place to reason; it must discern in the variety of institutional situations impinging upon individuals the chief source of differences in the content of their behavior; and it must take account of the limitations imposed by past activity upon the flexibility with which one can act in future.
Moreover, it is clear that the current tendency to abandon the crude hedonistic conception of economic motive, and to recognize that man’s economic action is, in part, habitual if not instinctive, altruistic and constrained, admirable as it may be, does not essentially alter this conception of problem or method; nor is this alteration achieved by the tendency to a more ultimate analysis of the conditions that underlie utility and cost in social, institutional, or even in historical terms.
If then individual judgments are not rational and instincts are non-dependable, Hobson can seek to accomplish a definite social purpose only upon the assumption of the possibility of rationality in collective judg?
As to rationality, we know that people usually are capable of following cause and effect in business far enough to see where they can get the most pay for what they have to sell.
The present writer believes that grounds will be shown for a further inquiry into the psychology of motives in the interests of economics, and perhaps some irrelevant points of the criticism can be eliminated from further discussion.
In order to derive any benefit from our knowledge of how the “economic motive” operates in a hand-picked selection of more or less hypothetical situations, we must compare that knowledge with what additional knowledge we can obtain from an examination of the actual situations in their multiform variety.
And if aesthetic, religious, and intellectual wants, and their attendant satisfactions, are not a part of the subject-matter of economic science, there should, perhaps, arise a reasonable expectation that pains and disutilities of westhetic, religious, or intellectual quality will be found to be excluded from the category of economic costs.”
In this type of economic theory, human nature is conceived, not as a ready-made something taken over at the outset, not as a postulate whose consequences must be developed, but as itself the chief subject of investigation.
To be sure the development of character and activities forms the non-rational basis of economic rationality in the narrower sense; it forms the source of the ” higher ” wants which cannot themselves be criticized merely in rational terms.
It may be suspected that those who credit “modern psychology” with having undermined “general economic theory” do not always trouble to distinguish the various possible meanings of the term “rational.”
In separating rational from irrational preference it is necessary to go behind the motivation of the consumer as expressed merely by his distribution of resources between different wants and into the nature of the motivation itself.
There are countless acts and motives, entering into price formation, which have a bearing on the economic welfare of men, but which are quite lost sight of or are glossed over in merely pecuniary calculations.
Finally, economics makes a definite assumption about the type of human behavior involved in the whole process- namely that it is, in limiting type, rational in the limited sense that, given the “end,” maximization of utility through acquisition of the largest possible quantity of means to wantsatisfaction compatible with the limitations of “cost,” the adaptation of means to this end tends to be the best possible under the circumstances.3 The end may thus, in the given circumstances, be held to determine the course of action.
The processes of their expression or attainment, on the other hand, he thinks of as rational, resting on a knowledge of the conditions under which action takes place.1 Secondly, Veblen criticizes the orthodox economics as logically dependent on hedonistic psychology.
The search for the real stimulus reveals the acquisitive tendency in man, standing as large as life in the place where the economists have assumed stood the rational quality which so directed conduct as to assure all-round beneficient results.
Economic purposiveness - the teleological impulse to construe all phenomena in In conformity with Sombart’s notion of the decisive role of objectives in the concept of rationalization, but otherwise at considerable variance with the usual definitions, H. S. Persons submits that it should be understood as, “.
It has long been recognised that when economists assume that people behave “rationally” no assumption is made as to the nature of the goods, - bread, opium, bibles, or instruments of self-torture, - which it is “rational” to choose, - no such distinction being feasible.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.730
In a rational economics, the area within which purely individualist motivation is allowed to prevail will be circumscribed by considerations of public welfare and economic stability.
It should be emphasized that the concept of economic rationality as efficiency in the use of given means to achieve given individual or group ends excludes a large part of the purposive life of men as social beings-the ideal as well as the actual.
The beginning of any rational approach to the problems must be recognition that there are universal principles of “economy”–as indeed our author recognizes in his next sentence, which contrasts “the general principle of maximizing satisfaction which is valid” and “everywhere works in practice” with “more particular and less general propositions,” the validity of which in cultures other than our own remains in question.
The first need here is to distinguish between the conditions under which the economic motive, in its cruder and simpler expression, is, so to speak, taken for granted, and those conditions under which its operations are subject to conscious reflection.
Economic action does not begin before the moment when the decisions are made, first, which of the conflicting desires is to be satisfied; secondly, which thing of value, apt to satisfy this preferred desire, is to be secured; and, thirdly, to what extent it is to be secured.
Incidentally, the author makes an astonishingly naive statement about people agreeing on ends but disagreeing on means, implying that an end could be rationally favored apart from the condition that it is both possible and attainable at a cost which does not outweigh the gain-both gain and cost being usually complex in kind and degree.
This criterion of rationality is herein indicated in the principle of euphoria which, by dominating the economic process in so far as it is the product of a conscious will, which selects the best means for obtaining its own ends, explains the reason of the economic action.
Ii Conflict of Economic Motives THIS CONFUSION REGARDING the scope and the task of economics rests entirely on the erroneous assumption that the science is concerned with the conflict of the motives of economic action: The measurement of motive thus obtained is not indeed perfectly accurate; for, if it were, economics would rank with the most advanced physical science, and not, as it actually does, with the least advanced.9 Marshall has a very adequate knowledge of this conflict or this “crossing of motives” and of the decisions to which it leads: First, decisions as to the relative urgency of various ends; secondly decisions as to the relative advantages of various means of attaining each end; thirdly decisions based on these two sets of decisions as to the margin up to which the person could most profitably carry the application of each means to each end.10 This is perfectly true.
He is assuming that ‘rational,’ i.e., economical choice is something worth striving for, and that this end is something with which the economist is directly concerned, and towards which he cannot be indifferent.3 Robbins’ position that there are no economic ends seems to be the more common opinion today; it is always assumed at the textbook level, and many theorists, omitting all discussion, take it for granted.
Among the 150 closest sentences to the cluster’s centroid, 3.33% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The beginning of any rational approach to the problems must be recognition that there are universal principles of “economy”–as indeed our author recognizes in his next sentence, which contrasts “the general principle of maximizing satisfaction which is valid” and “everywhere works in practice” with “more particular and less general propositions,” the validity of which in cultures other than our own remains in question.
To be sure the development of character and activities forms the non-rational basis of economic rationality in the narrower sense; it forms the source of the ” higher ” wants which cannot themselves be criticized merely in rational terms.
C, 257-258. wealth.2 Consequently, the economic motive becomes subjective, and usually operates in such wise that the individual is only vaguely conscious of the forces actuating him ;3 for few men resolve their problems rationally, the vast majority being content to accept the solutions furnished by custom.
It should be emphasized that the concept of economic rationality as efficiency in the use of given means to achieve given individual or group ends excludes a large part of the purposive life of men as social beings-the ideal as well as the actual.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Moreover, it is clear that the current tendency to abandon the crude hedonistic conception of economic motive, and to recognize that man’s economic action is, in part, habitual if not instinctive, altruistic and constrained, admirable as it may be, does not essentially alter this conception of problem or method; nor is this alteration achieved by the tendency to a more ultimate analysis of the conditions that underlie utility and cost in social, institutional, or even in historical terms.
The present writer believes that grounds will be shown for a further inquiry into the psychology of motives in the interests of economics, and perhaps some irrelevant points of the criticism can be eliminated from further discussion.
In economics, again, there are profound psychological problems relating to human motives in production which are of the greatest moment to our social and industrial system, but their intricacies must be explored mainly by scholars.
There are countless acts and motives, entering into price formation, which have a bearing on the economic welfare of men, but which are quite lost sight of or are glossed over in merely pecuniary calculations.
The first need here is to distinguish between the conditions under which the economic motive, in its cruder and simpler expression, is, so to speak, taken for granted, and those conditions under which its operations are subject to conscious reflection.
Hitherto economists for the most part have been vaguely conscious that the ultimate laws of economic conduct must be psychological, and, feeling the necessity of determining some defining boundaries of their study, have sought to make a selection of the motives and aims that are to be recognised by it.
When economic psychology is given the above interpretation, and the instrumental, non-ontological character of desires and motives as used m economics is sufficiently emphasized, there can be no objection to stating the principles of utility and disutility in the conventional form.
It has been shown that if we look at human action from the “subjective” point of view of the means-end relationship, economic theory occupies an intermediate position in the chain from ultimate means to ultimate ends.
We have noted that this basic concept identifies the subject-matter of economics, not with an objectively verifiable physical object or the behavior of physical individuals, but with a relation between such an object and the individual, which exhibits itself in an introspectively given interest in, want of, and desire for the object.
Ii Conflict of Economic Motives THIS CONFUSION REGARDING the scope and the task of economics rests entirely on the erroneous assumption that the science is concerned with the conflict of the motives of economic action: The measurement of motive thus obtained is not indeed perfectly accurate; for, if it were, economics would rank with the most advanced physical science, and not, as it actually does, with the least advanced.9 Marshall has a very adequate knowledge of this conflict or this “crossing of motives” and of the decisions to which it leads: First, decisions as to the relative urgency of various ends; secondly decisions as to the relative advantages of various means of attaining each end; thirdly decisions based on these two sets of decisions as to the margin up to which the person could most profitably carry the application of each means to each end.10 This is perfectly true.
He now not only concedes the legitimacy of economic investigation in terms of desire or of satisfaction, but he characterizes this as an intermediate or tentative stage preparing the way for an inquiry into the origin of the judgments upon which man builds a hierarchy of good-and-bad, higher-and-lower values, by which he subjects desires to an evaluation more fundamental than the merely quantitative standard of more-or-less satisfaction, or pleasure.
We may find the source of the notion, indeed the underlying principle, in earlier writers; we may qualify or amplify; we may think we have progressed beyond; indeed we may quite reject; but here is something with which all of us must reckon, something which has potently stimulated our thinking, enlarged our conception of the meaning of economic activity for human happiness.
In this type of economic theory, human nature is conceived, not as a ready-made something taken over at the outset, not as a postulate whose consequences must be developed, but as itself the chief subject of investigation.
The theme of the second paper, the importance of a broader biological and psychological basis in our economic theory, deserves our respectful hearing, and in most respects our cordial acceptance.
In this article the writer proposes to examine, first, the nature of economic theory and the characteristics of its implications as it bears upon wants, and production for their satisfaction.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Moreover, it is clear that the current tendency to abandon the crude hedonistic conception of economic motive, and to recognize that man’s economic action is, in part, habitual if not instinctive, altruistic and constrained, admirable as it may be, does not essentially alter this conception of problem or method; nor is this alteration achieved by the tendency to a more ultimate analysis of the conditions that underlie utility and cost in social, institutional, or even in historical terms.
The present writer believes that grounds will be shown for a further inquiry into the psychology of motives in the interests of economics, and perhaps some irrelevant points of the criticism can be eliminated from further discussion.
Hitherto economists for the most part have been vaguely conscious that the ultimate laws of economic conduct must be psychological, and, feeling the necessity of determining some defining boundaries of their study, have sought to make a selection of the motives and aims that are to be recognised by it.
In this type of economic theory, human nature is conceived, not as a ready-made something taken over at the outset, not as a postulate whose consequences must be developed, but as itself the chief subject of investigation.
The theme of the second paper, the importance of a broader biological and psychological basis in our economic theory, deserves our respectful hearing, and in most respects our cordial acceptance.
The concepts of utility, of “an economic man,” and of “an economic judgment” involve just enough of a trespass upon the vested interests of others to bring upon theorists protests from the psychologists, be they physiological, introspective, social, or what not.
And if aesthetic, religious, and intellectual wants, and their attendant satisfactions, are not a part of the subject-matter of economic science, there should, perhaps, arise a reasonable expectation that pains and disutilities of westhetic, religious, or intellectual quality will be found to be excluded from the category of economic costs.”
The determining desires are mixed as regards, on the one hand, egoism 1 The analogy worked out in this paper was roughly suggested in my note A Parallel between Economical and Political Theory in the ECONOMIC JOURNAL for June, 1902.
acter of the results demanded, are themselves dependent on those limiting assumptions from which a fulfilled economics must make itself free.1 One thing to be thankful for is the evidence that there is more economic theory in the world than many theorists have realized, since many inquiries that seem foreign to formal theory are really just the sort of thing that must inevitably result from following theory’s fundamental undertakings to the point of realism.2 For instance, the present series of papers starts with the attempt to square economic theory with modern psychology.
In economics, again, there are profound psychological problems relating to human motives in production which are of the greatest moment to our social and industrial system, but their intricacies must be explored mainly by scholars.
There are countless acts and motives, entering into price formation, which have a bearing on the economic welfare of men, but which are quite lost sight of or are glossed over in merely pecuniary calculations.
When economic psychology is given the above interpretation, and the instrumental, non-ontological character of desires and motives as used m economics is sufficiently emphasized, there can be no objection to stating the principles of utility and disutility in the conventional form.
It has been shown that if we look at human action from the “subjective” point of view of the means-end relationship, economic theory occupies an intermediate position in the chain from ultimate means to ultimate ends.
He now not only concedes the legitimacy of economic investigation in terms of desire or of satisfaction, but he characterizes this as an intermediate or tentative stage preparing the way for an inquiry into the origin of the judgments upon which man builds a hierarchy of good-and-bad, higher-and-lower values, by which he subjects desires to an evaluation more fundamental than the merely quantitative standard of more-or-less satisfaction, or pleasure.
We may find the source of the notion, indeed the underlying principle, in earlier writers; we may qualify or amplify; we may think we have progressed beyond; indeed we may quite reject; but here is something with which all of us must reckon, something which has potently stimulated our thinking, enlarged our conception of the meaning of economic activity for human happiness.
In this article the writer proposes to examine, first, the nature of economic theory and the characteristics of its implications as it bears upon wants, and production for their satisfaction.
“Economic wants may be serious, frivolous, or even positively pernicious, but the objects of these wants all alike possess utility in the economic sense.”’
Any conception of human nature that he may adopt is a matter of psychology, and any conception of human behavior that he may adopt involves psychological assumptions, whether these be explicit or n REXFORD G. TUGWELL IV The motives of men as they go about their economic affairs are important for economists to understand whenever there arises a question of why it is human conduct follows a given line.
When this characteristic of the psychological issue is comprehended with sufficient clarity, economic theorists, of whatever sort, may be induced to reexamine their psychological positions, with probably desirable results.
The first need here is to distinguish between the conditions under which the economic motive, in its cruder and simpler expression, is, so to speak, taken for granted, and those conditions under which its operations are subject to conscious reflection.
We have noted that this basic concept identifies the subject-matter of economics, not with an objectively verifiable physical object or the behavior of physical individuals, but with a relation between such an object and the individual, which exhibits itself in an introspectively given interest in, want of, and desire for the object.
Ii Conflict of Economic Motives THIS CONFUSION REGARDING the scope and the task of economics rests entirely on the erroneous assumption that the science is concerned with the conflict of the motives of economic action: The measurement of motive thus obtained is not indeed perfectly accurate; for, if it were, economics would rank with the most advanced physical science, and not, as it actually does, with the least advanced.9 Marshall has a very adequate knowledge of this conflict or this “crossing of motives” and of the decisions to which it leads: First, decisions as to the relative urgency of various ends; secondly decisions as to the relative advantages of various means of attaining each end; thirdly decisions based on these two sets of decisions as to the margin up to which the person could most profitably carry the application of each means to each end.10 This is perfectly true.
Some relation seems to exist between the nature of the motivations and their favourable or unfavourable influence upon the development of economics and other social sciences. ”
We realize that our designation of the individual as the only subject of wants, in the strict sense of the word, may be questioned from some of the more subtle viewpoints of psychology; even the individual subjectivization of wants is not beyond the range of meticulously skeptical criticism, which, nevertheless, does not pertain to our subsequent economic reasoning.
Indeed, the economic man may turn his efforts away from acquiring wealth to satisfying any inclination that may strike him, but in the entire register of his desires there is no yearning to be just and benevolentan omission which can hardly pass unnoticed in view of the emphasis which these cardinal virtues obtain in the Theory of Moral Sentiments.
While strongly emphasizing the role of the state and the community, and the immensely strong social disposition of man that originates and maintains those institutions, Knies especially inveighed against the defective psychology of those economists who based their entire deductive system upon the operation of one compelling motive, that of “desire for wealth,” “hope of gain,” or self-interest.
II Idealistic opponents of hedonism have attacked the “economic man” assumption on the grounds of its apparent crude materialism, which, in their view, gives only a distorted and unreal picture of human motivation.1’ The crux of the matter is, however, whether economic analysis would gain in realism if it gave more consideration to altruistic motives and disinterested action.
Indeed, it will be the principal thesis of the subsequent analysis that “economic motivation” is not a category of motivation on the deeper level at all, but is rather a point at which many different motives may be brought to bear on a certain type of situation.
The cluster gathers 1504 sentences from our corpus. It represents 0.93% of all the sentences selected over the whole period.
The community exists from 1900 to 1959.
The most recurring authors are Talcott Parsons (56 sentences), Paul T. Homan (31 sentences), A. B. Wolfe (24 sentences), Wesley C. Mitchell (21 sentences), Frank A. Fetter (20 sentences), Abram L. Harris (18 sentences), Jacob Viner (16 sentences), Walton H. Hamilton (16 sentences), Fritz Machlup (14 sentences), O. H. Taylor (14 sentences).
The most recurring journals are The Quarterly Journal of Economics (308 sentences), Journal of Political Economy (263 sentences), The American Economic Review (235 sentences), The Economic Journal (147 sentences), Economica (123 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1900-1919
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Top terms 1920-1939
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Top terms 1940-1949
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Top terms 1950-1959
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
He argues that to speak of man as “rational” in his economic decisions ’C.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
B. S. Keirstead
0.807
This rationality, by which he means neither “reasonableness” nor a high degree of theoretical scientific development, but a thoroughgoing systematization and adaptation of practical life to a particular set of ideals, indicates what features of modern society are of importance for his theory of capitalism.
Each individual behaves “freely,” and in the ideal order rationally, in the economic situation which confronts him at a given time; but that situation is partly determined for him by the previous actions of other men, and he in turn helps to create situations which affect the rational choices of others.
He then concludes: The economic proposition expresses rational necessity, not madness, which is irrational … Those propositions, lhke all the others of economic science, are therefore not descriptions but theorems….
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. Reinold Noyes
0.746
The validity 1 If I interpret him aright, this account is in accordance with the view expressed by Professor Robbins in his section on’” rationality ” in the concluding section on The Nature and Significance of Economic Science.
Since it molds his objective behavior, it becomes part of his subjective life, giving him a method and an instrument for the difficult task of assessing the relative importance of dissimilar goods in varying quantities, and affecting the interests in terms of which he makes ” This statement does not mean that the exercise of intelligence is a prominent feature in all habitual action, any more than it means that all institutions are rational.
He can examine the economic consequences of deviation from rationality relative to the degree of disorganization of the society and to the psychiatric inadequacy or disturbance of the individual.
We have to assume that man is rational and that his rationalism leads him to act as industrial civilization requires him to act if we want to be able to live under the present economic system.
It is a leading theme of his i9io article on “The Rationality of Economic Activity,”“7 the basis of his interpretation of current developments in economic theory in his i9i6 article”The Role of Money in Economic Theory,“’8 and an important part of his interpretation of earlier classical writers in his”Lecture Notes.”
The former’s reference to the deductive structure of theoretical economics as an “organon of thoughts and to the corresponding propositions as”theorems” implies an obvious emphasis on the rational, as distinguished from empirical, character which they are deemed by him to possess.
“Had not rational calculation formed the basis of economic activity,” he asserts, “had there not been certain very particular conditions in its economic background, rational technology could never have come into existence.
In addition, it should be recalled that in another context Schumpeter has expressed serious doubts as to whether differences in „systems of thought”159, or patterns of reasoning, are apt to affect significantly the results of economic analysis.
Zeitschrift für Nationalökonomie / Journal of Economics
Hans Aufricht
0.722
Still this should not render us purblind to the fact that what he presented as a “matter-offact” inquiry into “brute” causation is substantially a critique of existing economic institutions and theories which rests upon thinly concealed value judgments, assumptions, and preconceptions concerning the past and the desirable course of future progress.
Here is a point which especially seems to worry Schuller–the contrast between man’s economic rationality on the market, and his irrationality in the political sphere.
Here one can see how his insight into the history of social thought, the decisions of the courts, due process of law, social conflicts, social efficiency, and the psychology of laborers and business executives all blend into what might appear superficially to be simple suggestions regardanother has become strategic in the development of economic thought.
not in man originally, but is put there by institutions, or grows there by the interaction of the world of natural forces and the capacity to learn.2 Wesley C. Mitchell was profoundly influenced by this proposition and in 1910, discussing the “Rationality of Economic Activity,” he attempted to reexamine the whole notion of the motivation of “the economic man.”
In his eagerness to remain “positive” in the sense of the natural sciences, he fails to clarify the implications of attempting to center his economics on the conception of rational action in terms of the relation of means and ends.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Since it molds his objective behavior, it becomes part of his subjective life, giving him a method and an instrument for the difficult task of assessing the relative importance of dissimilar goods in varying quantities, and affecting the interests in terms of which he makes ” This statement does not mean that the exercise of intelligence is a prominent feature in all habitual action, any more than it means that all institutions are rational.
More unconsciously its concepts had impressed themselves too deeply upon his mind to be obliterated by any mere logical process, and they affected his work to the very end.5 t The thoroughness and current value of two of these are attested by their inclusion in recently published books of readings in economics.
“58 He even questions whether there could be a science of economics in a community that did not use money, unless there existed some substitute which would”serve to measure the strength of motives just as conveniently and exactly as money does with us.
To be sure, he must know that men desire certain scarce things partly because they think them right or politically expedient, which, put in other words, is to say that the economic world - being a part of other worlds, all interpenetrating - is modified in scope by those other worlds; but he takes his world as he finds it, and his society is none the less economic.
His aspirations may all be spiritual, he may rebel at the existence of the institution, but in the end no choice is left save obedience.1 This is not because he is money-mad, 1 Perhaps no question of theoretical interest in economics has provoked more confusion than that of the incentives to economic activity.
For Mr. Anderson, however, this has the dialectical advantages of freeing him from the necessity of treating institutions and of making concessions to the genetic met because the price-system is not of his making, it is not to his lik?
There is no a priori reason for concluding that one kind of man is better than another, certainly not for concluding that a non-calculating, impulsive man, whose economic reactions are wholly instinctive, is better than one who calculates and carefully compares costs and advantages.
And Professor Carver thinks that “an examination of Walker’s argument will serve as a good introduction to the general question of the meaning and significance of an economic quantity.”
And Professor Carver thinks that “an examination of Walker’s argument will serve as a good introduction to the general question of the meaning and significance of an economic quantity.”
Question the advisability of a tax on food and he is sympathetic; suggest that raw material-and to him raw material usually includes anything he uses in his own particular industry-ought to be admitted free and he approaches the enthusiastic; deny the necessity for affording a stiff measure of protection to whatever comes out of his own factory or workshop, and he waxes indignant.
He has given the type of characteristic economic discussion, close set logical reasoning from premises clearly defined, the defects almost invariably lying in those premises, not in that reasoning.
This rationality, by which he means neither “reasonableness” nor a high degree of theoretical scientific development, but a thoroughgoing systematization and adaptation of practical life to a particular set of ideals, indicates what features of modern society are of importance for his theory of capitalism.
Each individual behaves “freely,” and in the ideal order rationally, in the economic situation which confronts him at a given time; but that situation is partly determined for him by the previous actions of other men, and he in turn helps to create situations which affect the rational choices of others.
The validity 1 If I interpret him aright, this account is in accordance with the view expressed by Professor Robbins in his section on’” rationality ” in the concluding section on The Nature and Significance of Economic Science.
The former’s reference to the deductive structure of theoretical economics as an “organon of thoughts and to the corresponding propositions as”theorems” implies an obvious emphasis on the rational, as distinguished from empirical, character which they are deemed by him to possess.
not in man originally, but is put there by institutions, or grows there by the interaction of the world of natural forces and the capacity to learn.2 Wesley C. Mitchell was profoundly influenced by this proposition and in 1910, discussing the “Rationality of Economic Activity,” he attempted to reexamine the whole notion of the motivation of “the economic man.”
In his eagerness to remain “positive” in the sense of the natural sciences, he fails to clarify the implications of attempting to center his economics on the conception of rational action in terms of the relation of means and ends.
76- If, as he states, all institutions are in some measure economic, it would seem that his institutionalism is equivalent to economic determinism from the effects of which few, if any, phases of human behavior escape.
But the rather far-reaching rationality which characterizes his picture of free enterprise, has not always existed; it has come only with a long process of evolution, resulting in a gradual widening of the scope and power of rational behavior.
We know that he rejects anything that smacks of rational hedonism and that he has little patience with the “American psychological economics” of Fisher and Fetter, by which, with Commons, he thinks political economy is converted into countinghouse economics.9 We have his reiterated conviction that economics is one of the sciences studying human behavior, but his positive thought on the psychology of motivation in relation to the task of economic analysis is somewhat obscure.
These explanations assume that the business man will not behave rationally, that his behavior does not follow the same rules which it is supposed to follow in the theoretical system of economics.
He then concludes: The economic proposition expresses rational necessity, not madness, which is irrational … Those propositions, lhke all the others of economic science, are therefore not descriptions but theorems….
Here one can see how his insight into the history of social thought, the decisions of the courts, due process of law, social conflicts, social efficiency, and the psychology of laborers and business executives all blend into what might appear superficially to be simple suggestions regardanother has become strategic in the development of economic thought.
As he sees it, rational conduct imposes upon the individual the moral obligation of orienting all his economic interests, not alone the profit interest, toward the realization of those moral and religious virtues promulgated by the church as ideals of a universal Christian social order.
the rate of return on production; he may be indifferent to the maximization of his welfare, finding it “rational to be irrational” ;4 he may be disinclined to engage in production or to invest in securities, regardless of their rate of return, since he does not wish to gamble, however slightly; he may find the units in which productive resources, securities, and even consumption goods are found to be such that it would, in any case, be impossible for him to equalize the rates of return, even if he wanted to take the trouble; and finally, the organization of markets, with their frictions and other impediments, may be such that it would take a considerable time for him to make the necessary transfers between resources and thus adjust himself to changes in the rates of return.
Economic behavior, he declared, was simply rational behavior, and he exemplified the maxim by stating: “From the master down to the meanest utensil, the best capacity for fulfilling the contemplated ends, is invariably the best economy.”“’
If, instead of using this information in the abridged form in which it is conveyed to him through the price system, he were to try in every instance to go back to the objective facts and take them consciously into consideration, this would be to dispense with the method which makes it possible for him to confine himself to the immediate circumstances and to substitute for it a method which requires that all this knowledge be collected in one centre and explicitly and consciously embodied in a unitary plan.
In fact, the economist’s belief in tendencies towards, and his search for levels of, equilibrium in the competitive economy can be understood only in the light of the assumption of the “economic man” and the rationality of his conduct.
he reached the conclusion that a theory which treated normal value as ” that which the undisturbed play of competition would bring about ” was ” untenable from an abstract as well as from a practical point of view,” 1 observed that in many industries each producer has a special market in which he is well known, and which he cannot extend quickly: and .
However, he does seem to suggest that the entrepreneurial behaviour posited by him is also rational and indeed at times he appears to argue that we can presume that entrepreneurs act thus because it is rational.
Ralph Turvey , J. de V. Graaff , W. Baumol , G. L. S. Shackle
0.691
Finding that these concepts were unnecessary and “lacked quantitative definiteness and concrete understandability,” he resolved to build “a real economic science” by reconstructing economic theory.2 Now, after more than forty years, he aptly characterizes this resolve as a “giant undertaking,” and is quite confident of having succeeded.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. Reinold Noyes
0.746
He can examine the economic consequences of deviation from rationality relative to the degree of disorganization of the society and to the psychiatric inadequacy or disturbance of the individual.
We have to assume that man is rational and that his rationalism leads him to act as industrial civilization requires him to act if we want to be able to live under the present economic system.
It is a leading theme of his i9io article on “The Rationality of Economic Activity,”“7 the basis of his interpretation of current developments in economic theory in his i9i6 article”The Role of Money in Economic Theory,“’8 and an important part of his interpretation of earlier classical writers in his”Lecture Notes.”
“Had not rational calculation formed the basis of economic activity,” he asserts, “had there not been certain very particular conditions in its economic background, rational technology could never have come into existence.
In addition, it should be recalled that in another context Schumpeter has expressed serious doubts as to whether differences in „systems of thought”159, or patterns of reasoning, are apt to affect significantly the results of economic analysis.
Zeitschrift für Nationalökonomie / Journal of Economics
Hans Aufricht
0.722
Still this should not render us purblind to the fact that what he presented as a “matter-offact” inquiry into “brute” causation is substantially a critique of existing economic institutions and theories which rests upon thinly concealed value judgments, assumptions, and preconceptions concerning the past and the desirable course of future progress.
Here is a point which especially seems to worry Schuller–the contrast between man’s economic rationality on the market, and his irrationality in the political sphere.
Broadly stated, the task is to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacitiesthat are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist.
Where his own interests are involved, it may be hoped that the real issue will not be “economic rationality versus private interest” but rather “private interest interpreted in the light of economic rationality versus unenlightened private interest.”
Among the 200 closest sentences to the cluster’s centroid, 4% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It is a leading theme of his i9io article on “The Rationality of Economic Activity,”“7 the basis of his interpretation of current developments in economic theory in his i9i6 article”The Role of Money in Economic Theory,“’8 and an important part of his interpretation of earlier classical writers in his”Lecture Notes.”
He then concludes: The economic proposition expresses rational necessity, not madness, which is irrational … Those propositions, lhke all the others of economic science, are therefore not descriptions but theorems….
He repeatedly denied that he was constructing an economic theory, stressing rather that the results of economic theory ” form the basis of a sociology of economic action “.3 His task he regarded as the explanation of the conditions assumed by economic theory, e.g., pecuniary orientation, formal rationality, etc., and the tracing of the consequences flowing into other spheres of life from the economic sphere.
We know that he rejects anything that smacks of rational hedonism and that he has little patience with the “American psychological economics” of Fisher and Fetter, by which, with Commons, he thinks political economy is converted into countinghouse economics.9 We have his reiterated conviction that economics is one of the sciences studying human behavior, but his positive thought on the psychology of motivation in relation to the task of economic analysis is somewhat obscure.
In his eagerness to remain “positive” in the sense of the natural sciences, he fails to clarify the implications of attempting to center his economics on the conception of rational action in terms of the relation of means and ends.
The validity 1 If I interpret him aright, this account is in accordance with the view expressed by Professor Robbins in his section on’” rationality ” in the concluding section on The Nature and Significance of Economic Science.
In fact, the economist’s belief in tendencies towards, and his search for levels of, equilibrium in the competitive economy can be understood only in the light of the assumption of the “economic man” and the rationality of his conduct.
In other words,” he continues, ” was the law of diminishing utility of income the sole obstacle to our accepting the principle of maximisation of mathematical expectation of income as an all-embracing explanation of representative action, or at least of rational action, in the face of uncertainty?
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
His economics is no exercise in pure logic superimposed upon conveniently chosen assumptions and arbitrarily frozen data, but a constant interpenetration between dynamic economic forces and an environment which they do not inherit passively, but which is often also shaped, remolded, or even created by them.
He makes use of an erudition in philosophy which seems nearly as wide as his very remarkable erudition in economic literature, only to throw out undeveloped, unproved, and in many cases far-fetched and doubtful suggestions, about connections between given economic theories, “schools,” and “systems” on the one hand, and the general ideas of given philosophers, on the other hand.
Permitting his mind to roam beyond the sphere of his personal preoccupation with prices, he attempts to cast economic thought into terms congruous with the more approved views of modern psychology, with a pragmatic philosophy, and with an evolutionary view of social development.
At first inclined to limit economic inquiry to investigati by the utilitarian tradition which has been so powerful and persistent in economics, he has seemed content to make his analyses in satisfaction terms, without evidencing much fear that a new revelation in philosophy or psychology, or old knowledge newly applied, would expose a lack of relevance of his analyses or his conclusions to human welfare.
He aims at finding ” among the doctrines advanced more than one hundred years ago, such theories as still to-day can help us to understand economic phenomena.”
Since economics is to him an aggregate of social and political organs forming a uniity in time or space, the treatment of applied economics naturally falls within its scope.
It is a leading theme of his i9io article on “The Rationality of Economic Activity,”“7 the basis of his interpretation of current developments in economic theory in his i9i6 article”The Role of Money in Economic Theory,“’8 and an important part of his interpretation of earlier classical writers in his”Lecture Notes.”
It is possibly here that we must discover the practical basis for his insistence that economic theory must operate solely in atomistic, acquisitive, price terms, the basis for his objection to economic theory as a calculus of welfare.
However, a sharp distinction between the two meanings of “Economics” in his works is perfectly possible; and since it is essential in this article, I shall try to clarify it by outlining his career as an economist.
More unconsciously its concepts had impressed themselves too deeply upon his mind to be obliterated by any mere logical process, and they affected his work to the very end.5 t The thoroughness and current value of two of these are attested by their inclusion in recently published books of readings in economics.
It is noteworthy, in the first place, that his definitions of economics are highly imprecise - the usual one is “a study of man in the everyday business of life.”
The “manifestations of capital wastage” are, in his sense, “static adjustments”; and not “dynamic changes” It is no use, therefore, for the economist to content himself with being “inclined to believe” that, in the spheres of economic psychology and economic sociology, “economists may have a definite advantage over others.”
On the other hand, he maintains “that economic theory cannot be universal but on the contrary must be conditioned by historical developments and contemporary circumstances.”
It would seem that his mind must have reverted to the true conception of wealth as a quantum of social value; but no, the following paragraph reveals that he is still looking at things objectively, just as the classical economists did, and that he has failed to keep the fundamental and universal economLic relation clearly in mind.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Since economics is to him an aggregate of social and political organs forming a uniity in time or space, the treatment of applied economics naturally falls within its scope.
More unconsciously its concepts had impressed themselves too deeply upon his mind to be obliterated by any mere logical process, and they affected his work to the very end.5 t The thoroughness and current value of two of these are attested by their inclusion in recently published books of readings in economics.
It would seem that his mind must have reverted to the true conception of wealth as a quantum of social value; but no, the following paragraph reveals that he is still looking at things objectively, just as the classical economists did, and that he has failed to keep the fundamental and universal economLic relation clearly in mind.
To be sure, he must know that men desire certain scarce things partly because they think them right or politically expedient, which, put in other words, is to say that the economic world - being a part of other worlds, all interpenetrating - is modified in scope by those other worlds; but he takes his world as he finds it, and his society is none the less economic.
Is it not possible that he also may find elsewhere an equivalent discipline in scientific inference, perhaps a greater stimulus to fresh and original economic thinking, and at least an escape from the imposition of authoritative forms of thought until individuality and initiative in thought have been somewhat established?
This he does willingly, the while overriding intellectual frontiers on the theory that the threads of life are so “inextricably intertwined” that the economic is meaningless apart from the general social situation.
Whatever a man’s creed may be, there are always many things in the world which provoke him to raise a dissenting voice, and economists are always especially sus?
He says:2- Abandoning, then, the impossible task of discovering what is the accepted economic usage, let us turn to the usage of the business man and the general public which is innocent of political economy.
He makes use of an erudition in philosophy which seems nearly as wide as his very remarkable erudition in economic literature, only to throw out undeveloped, unproved, and in many cases far-fetched and doubtful suggestions, about connections between given economic theories, “schools,” and “systems” on the one hand, and the general ideas of given philosophers, on the other hand.
Permitting his mind to roam beyond the sphere of his personal preoccupation with prices, he attempts to cast economic thought into terms congruous with the more approved views of modern psychology, with a pragmatic philosophy, and with an evolutionary view of social development.
At first inclined to limit economic inquiry to investigati by the utilitarian tradition which has been so powerful and persistent in economics, he has seemed content to make his analyses in satisfaction terms, without evidencing much fear that a new revelation in philosophy or psychology, or old knowledge newly applied, would expose a lack of relevance of his analyses or his conclusions to human welfare.
He aims at finding ” among the doctrines advanced more than one hundred years ago, such theories as still to-day can help us to understand economic phenomena.”
It is possibly here that we must discover the practical basis for his insistence that economic theory must operate solely in atomistic, acquisitive, price terms, the basis for his objection to economic theory as a calculus of welfare.
It is noteworthy, in the first place, that his definitions of economics are highly imprecise - the usual one is “a study of man in the everyday business of life.”
The “manifestations of capital wastage” are, in his sense, “static adjustments”; and not “dynamic changes” It is no use, therefore, for the economist to content himself with being “inclined to believe” that, in the spheres of economic psychology and economic sociology, “economists may have a definite advantage over others.”
The most that he ventures to affirm with definiteness is that “little issues can be split off from the large economic problems …….. and successfully be treated by an admixture of distinctly psychological theory and data with economic principles and statistics.”
However, a sharp distinction between the two meanings of “Economics” in his works is perfectly possible; and since it is essential in this article, I shall try to clarify it by outlining his career as an economist.
On the other hand, he maintains “that economic theory cannot be universal but on the contrary must be conditioned by historical developments and contemporary circumstances.”
He then concludes: The economic proposition expresses rational necessity, not madness, which is irrational … Those propositions, lhke all the others of economic science, are therefore not descriptions but theorems….
Here one can see how his insight into the history of social thought, the decisions of the courts, due process of law, social conflicts, social efficiency, and the psychology of laborers and business executives all blend into what might appear superficially to be simple suggestions regardanother has become strategic in the development of economic thought.
Finding that these concepts were unnecessary and “lacked quantitative definiteness and concrete understandability,” he resolved to build “a real economic science” by reconstructing economic theory.2 Now, after more than forty years, he aptly characterizes this resolve as a “giant undertaking,” and is quite confident of having succeeded.
He repeatedly denied that he was constructing an economic theory, stressing rather that the results of economic theory ” form the basis of a sociology of economic action “.3 His task he regarded as the explanation of the conditions assumed by economic theory, e.g., pecuniary orientation, formal rationality, etc., and the tracing of the consequences flowing into other spheres of life from the economic sphere.
against those whom he labels “the detractors” and “the critics of Economics”; he solves problems and enunciates verities not from the viewpoint of himself or his school but “from the point of view of Economic Science.
His economics is no exercise in pure logic superimposed upon conveniently chosen assumptions and arbitrarily frozen data, but a constant interpenetration between dynamic economic forces and an environment which they do not inherit passively, but which is often also shaped, remolded, or even created by them.
It is a leading theme of his i9io article on “The Rationality of Economic Activity,”“7 the basis of his interpretation of current developments in economic theory in his i9i6 article”The Role of Money in Economic Theory,“’8 and an important part of his interpretation of earlier classical writers in his”Lecture Notes.”
And in developing his own political philosophy, he can be helped by this kind of study of all kinds of outlooks to transcend his own initial, provincial prejudices, acquired from his social background and “upbringing,” and to achieve in their place a much broader and wiser perspective - of great value in itself and in the main a help instead of a hindrance to production of objective work in economic science.
When we study the mimeograph of his famous course on the history of economic thought - Types of Economic Theory which I hope to see published some day - we are struck by the fact that he objected to his authors’ “postulates” quite as much as he objected to their “preconceptions.”
“At this level of the argument, the theorist actually removes the veil of subjective appearances and, instead of interpreting actions of economic individuals in terms of subjective motivations and beliefs, he explains these very beliefs and motivations in terms of objective actions and reactions.”
He contends that to be properly understood economic activity must be viewed “behavioristically,” not subjectively-that is to say, it must be viewed in the perspective of a “negotiational psychology” which he distinguishes from the classical economist’s “individualistic psychology of pleasure and pains, wants and satisfactions.”
It must not be inferred that his thought was unsystematic, or that he had a journalistic approach, arguing on some particular problem without apprehending its interconnexions with the whole economy.
The cluster gathers 631 sentences from our corpus. It represents 0.39% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are Walton H. Hamilton (55 sentences), Wesley C. Mitchell (37 sentences), J. M. Clark (36 sentences), L. L. Price (28 sentences), Lewis H. Haney (27 sentences), H. J. Davenport (26 sentences), F. W. Taussig (21 sentences), Frank A. Fetter (19 sentences), Thorstein Veblen (18 sentences), F. Y. Edgeworth (17 sentences).
The most recurring journals are The Quarterly Journal of Economics (211 sentences), Journal of Political Economy (204 sentences), The American Economic Review (122 sentences), The Economic Journal (94 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Authors
Words Similarity
As a thoroughly rationalized statement of that which never remotely approaches the rational,- as a formulation of the logic implicit in the market,- it has, in some directions, an important function in economic investigation; but it says merely that, with the various occasions of friction eliminated, with things different in degree merely, the forces and tendencies of the market would work out in conformity with the illustrative scheme.
We need in no degree abandon the hope of reaching by the aid of the more accurate and finished instruments supplied by reasoning of a mnathematical character those inmost recesses of fine argument into which the older economists with their ruder, blunter tools failed to penetrate; and we may expect to gain results of some importance which were beyond their competence to achieve.
So long as economists follow this practice of explaining what is rational conduct under the conditions as- Sitmed, aind depend upon an assumption that inen are rational to make the theory a tolerably accurate account of the “facts,” it is particularly desirable for them to keep their rational explanations on the same basis as men’s rational economic choices. “’
This is a serious disadvanatage; for, if it be difficult to force the miiore elaborate an-d refined ,of economic arguments within the limits of coiimmon intellectual capacity, or if it prove impossible to reach this distant goal without intense, continued strain, a large part of economic science, on the other hand, with little trouble, canl be miiade attractive and intelligible to ordinary citizens.
So far as the question of economic method is concerned, here again it is clear no abstract reasoning can suffice: the history of each people and the facts of each case must be investigated, and generalization from a priori reasoning must be shunned.
But considerations of this kind vary in every country and with every age, and they can neither form the basis of any general science, nor supersede the investigation of the broad economic tendencies which determine the action of mankind MODERN LOGICIANS AND ECONOMIC METHODS 503 generally.
It is necessary to clear thinking in this field to recognize that when we go beyond alternatives as they are and preferences as they are, we have passed from the realm of fact to that of what ought to be; we have crossed the line which divides economics from ethics, and can then proceed only in the light of a tenable concept of absolute value; there is no intermediate position.
What can hardly be denied by an alert observer of the controversy is that some confusion has prevailed between the habitual use in economic reasoning of certain appropriate assumptions, and the approval or adoption of those assumptions as the desirable permanent conditions of ordinary life, or the assertion or admission of their full accord with the plain facts c MARCH of trading intercourse.
On the contrary, no man was more, profoundly convinced of the necessity of wide and patient inductive researches in economic science, and no man brought subtler psychological analysis to bear upon its problems than did he; only he recognised that, when a certain class of abstract economic propositions are once made, being essentially mathematical in their character, they rigidly involve or exclude certain other propositions; and if their mathematical character is recognised, then SEPT. we can make sure that we have lost nothing and inserted nothing on the road when we pass from the premisses to the conclusions.
If, indeed, one still cherishes notions as to the universal applicability of “economic laws,” this historic survey might help in the process of shedding them; but have we not all passed this stage of economic reasoning once for all?
II Since the general abandonment of the “economic man” doctrine of the classical economists, and since thinkers have come to mingle with purely economic doctrines a generous amount of ethics, men have become prone to decide some questions upon a purely ethical basis, and to declare them economically sound if they can by the other means prove them desirable.
This reasoning is legitimate and serves to set off the physical possibilities of economic life in a category by themselves; and this category has been appropriated as the peculiar field of economics. ”
For economic problems are not logical in the sense that they are capable of deductive solution from a few general principles, but rather they are psyclhological in the sense that they are determined by a subtle play of motive and activity, nor are all the data of the present, thotugh they have grown out of the past, the same in kind or in causal significance.
This statement of the reason why the formal neglect of pecuniary concepts has not resulted in more serious errors, serves also to explain why a mechanics of self-interest helps 46 As has been shown above, however, the classical economists were some?
2 This refers to the traits from which the actual doctrines of “economic theory” have been derived, not to the preliminary descriptions of human nature, quite unex?
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
Top sentences (in general) of the cluster’s centroid
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Year
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Centroid Similarity
One hesitates to approach the invidious task of assigniing primacy in this new school of thought; for that there is a new school, and that it has come to include a passably generous membership-somewhat localized still-and that its doctrine means much for the good or evil of economic science, is the excuse, so far as there can be any, for the present paper.
On the contrary, no man was more, profoundly convinced of the necessity of wide and patient inductive researches in economic science, and no man brought subtler psychological analysis to bear upon its problems than did he; only he recognised that, when a certain class of abstract economic propositions are once made, being essentially mathematical in their character, they rigidly involve or exclude certain other propositions; and if their mathematical character is recognised, then SEPT. we can make sure that we have lost nothing and inserted nothing on the road when we pass from the premisses to the conclusions.
The writer began some years ago a study of the extent to which economic theory was limited by its premises, and of the character and extent of readjustment necessary to carry on the work done by his father in formulating theory free of static limitations.
This is a serious disadvanatage; for, if it be difficult to force the miiore elaborate an-d refined ,of economic arguments within the limits of coiimmon intellectual capacity, or if it prove impossible to reach this distant goal without intense, continued strain, a large part of economic science, on the other hand, with little trouble, canl be miiade attractive and intelligible to ordinary citizens.
For when economic theory has been purified so far that human nature has no place in it, economists become interested perforce in much that lies outside their theoretical field.
To catalogue the subjects to which the term “economic” is applied is to belie the careful definitions of the science pent up in books; to find an economic theory consistent with this multiform expression is to dissipate that theory in polychromatic reality.
Economic theory should be actively relevant to the issues of its time and it should be based on a foundation of terms, conceptions, standards of measurement, and assumnptions which is sufficiently realistic, comprehensive, and unbiassed to furnish a common meeting ground for argument between advocates of all shades of conviction on practical issues.
Let us suppose there were a recognised body of economic doctrine the truth and relevancy of which perpetually revealed itself to all who looked below the surface, which taught men what to expect and how to analyse their experience; which insisted at every turn on the illuminating relation between our conduct in life and our conduct in business; which drove the analysis of our daily administration of our individual resources deeper, and thereby dissipated the mist that hangs about our economic relations, and concentrated attention upon the uniting and all- penetrating principles of our study.
Unfortunately economists have devoted themselves so exclusively to the development of their science, even in its less essential refinements, that they have neglected the really essential work of interpretation and application to concrete conditions, of economic principles.
If, indeed, one still cherishes notions as to the universal applicability of “economic laws,” this historic survey might help in the process of shedding them; but have we not all passed this stage of economic reasoning once for all?
Some such idea is practically indispensable in any formulation of the subject which purposes to make economic theory a constructive force in our social life and to set up standards for the appraisal of current economic processes.
It is evident in the first place that, besides the hypothetical conclusions, a great deal that now passes for Economics is not economic at all, but belongs to the wider sphere of a science concerning itself with all human activities,- the science, that is, of human motives.
If the mathematical treatment of theory has latterly gained conspicuous prominence in economics-and this no informed observer of the drift of professional opinion in this country or in America can doubt-its influence has been shown, not merely in a greater exactitude of formal exposition, and a more scrupulous elimination of hidden error, but also in the more ambitious aspirations diffused more widely among economic writers, which prompt them to combine in one firm grasp the multitudinous threads of many fine-spun arguments, repeatedly untying with nimble dexterity the hard knots in which they are continually liable to be entangled.
Here, as in many other matters, economics is too much under the influence of its beginnings; it is still too much a ne’lange of metaphysics, literature, philosophy, and common-sense; it is not yet sufficiently dominated by the scientific attitude of mind.
This equipment of terms and theories and presuppositions is the common possesssion of economic thought in the large - not of this school or the other, not of ancient or of modern, not of cost doctrinaires or of utility doctrinaires, but of the genus economist in general.
The cluster gathers 2375 sentences from our corpus. It represents 1.47% of all the sentences selected over the whole period.
The community exists from 1900 to 1959.
The most recurring authors are L. L. Price (47 sentences), O. H. Taylor (46 sentences), Karl Pribram (41 sentences), Talcott Parsons (38 sentences), Frank H. Knight (34 sentences), Paul T. Homan (33 sentences), Ronald L. Meek (30 sentences), Joseph J. Spengler (29 sentences), Jacob H. Hollander (27 sentences), C. E. Ayres (22 sentences).
The most recurring journals are The Quarterly Journal of Economics (426 sentences), The American Economic Review (408 sentences), Journal of Political Economy (350 sentences), The Economic Journal (256 sentences), Economica (189 sentences).
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Top terms 1900-1919
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Top terms 1920-1939
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Top terms 1950-1959
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
To say that a piece of economic conduct was “rational” came to mean little, if anything, more than that it was a piece of economic conduct.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.775
The adversity of historical development need not spell the end of systematic economic theory, were it not for the fact that nothing in human experience but the drive for a self-regulating market economy ever called for a specifically and purely economic rationality.
Indeed it is really necessary to explain it rationally, for, unless we are willing to accept a blind fatalism, according to which history moves on without being controlled by human volition, we must recognize that what seems to us the orderly development of institutions is rational and orderly, precisely because men have been constantly trying new expedients and have deliberately retained those institutions and practices which stand the test of experience.
Even this rationality has a mercantile flavour; it is not the rationality premissed by Aristotle or Grotius whereby men were capable of living in accordance with rules of social conduct; it is not strong enough to withstand the force of competitive appetites, only strong enough to sh’ow men that they must submit to a sovereign to avoid worse.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. B. Macpherson
0.764
Often enough, what appeared as mercantilistic folly to Adam Smith or as collectivistic folly to Herbert Spencer or the “orthodox” of the 1920’s were perfectly rational actions in the absence of the balancing mechanism of a full-fledged market economy.
The history of economic thought, however, in the aspects treated here seems to me to provide one exceedingly important element of the logical situation out of which such a conception can be built.
In the nineteenth century psychological factors invaded theory and somewhat disturbed the automatic mechanisms of classical economics, but the individual has always remained rational: he knows what he wants; he wants what he knows.
Economists have often expostulated over the excessive rationalism of the eighteenth century, and it is certainly true that mankind is not the perfect calculator of classical theory.
Many judicious readers will surely share the regret that this work was not limited to the simpler factual sphere instead of being rashly expanded into a project of economic revolution resting on shallow philosophic foundations.
And yet we may declare without reserve that the economic history of to-day is as different from those early essays, whether of Adam Smith or of other more distant writers, as what has been called the ” science of measurable motives,” with its developed apparatus of fine reasoning, is distinct from the beginnings of that study, which, furnished by the acute and sensible intelligence of the parent of modern economics, serve to part him from his nearer or remoter predecessors.
This institutional idea of reason and reasonable value is collective and historical, whereas the rationalistic ideas of many other economic writers has been individualistic, subjective, intellectual, and static.
The ” historical ” opposition on the other hand has attacked not so much the conception of rational action itself in its broader sense but rather its specific economic form as dominated by “calculation of advantage.”
Whether the recent discovery by certain economists and politicians of a phenomenon that was common and generally known in the eighteenth century is justification for discarding an economic system based on the profit motive, individual enterprise, and free prices, is a question that every economist must answer for himself.
We must examine what, in the absence of a better term, we may call “rational motivation,” that is, how the problem of capitalism versus socialism was defined and a decision reached.
“1- Concessions to the forces of rationality, moreover, need not be cast into formal institutional changes to be important and influential, and Soviet economists would seem to have reason to be cheered by continued signs that some of their arguments are influencing the decision processes of economic policy-makers.
Moreover to retain a direct connection with the older economics it was necessary to leave a place for a limited r6le of rationality of individual action.
There is one limiting feature of economic doctrine which is perhaps not so generally kept in mind as it should be; namely, that many of the particular doctrines which go to make it up have been devised at some time in the past to meet particular problems which at that time were pressing, and were, accordingly devised with a special angle or slant which needs always to be read into the doctrine if it is to be properly understood.
The suggestion offered here is that for the founders of economic science no such conflict or hiatus existed; and that when their conception of a social mechanism, and the uses they made of it, are fully understood, they will be seen to have opened a way to causal explanation of economic behavior without abdication of the right of criticizing it or the hope of reforming it.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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Journal
Authors
Centroid Similarity
Indeed it is really necessary to explain it rationally, for, unless we are willing to accept a blind fatalism, according to which history moves on without being controlled by human volition, we must recognize that what seems to us the orderly development of institutions is rational and orderly, precisely because men have been constantly trying new expedients and have deliberately retained those institutions and practices which stand the test of experience.
And yet we may declare without reserve that the economic history of to-day is as different from those early essays, whether of Adam Smith or of other more distant writers, as what has been called the ” science of measurable motives,” with its developed apparatus of fine reasoning, is distinct from the beginnings of that study, which, furnished by the acute and sensible intelligence of the parent of modern economics, serve to part him from his nearer or remoter predecessors.
And if, passing from their theoretical suppositions to their practical advice, we consider that maxim of legislation and administrative conduct which, in harmony with their speculative reasoning, the economists of the middle of the nineteenth century approved and recommended, we are led to no dissimilar a conclusion on the present relevancy of belief and counsel, which were announced with such confidence, and received with such unquestioning respect, in bygone days.
If some unusually dense individual who had failed after miany attempts to pass his examination in economic theory had proposed the policy which has been adopted, he would have been asked two questions: first, ” What peculiar sanctity is there about the position occupied in the closing years of the nineteenth cenitury ?
His successors may have attained a more exact analysis than that at which he himself arrived; and a writer, like the late Duke of Argyll, may TR&DE AND PROTECTION 309 be giving expression to a more profound, and not less consistent, philosophy, when he declares that during the nineteenth century “two great discoveries” have ” been made in the Science of Government,” of which the ” one ” is ” the immense advantage of abolishing restrictions upon Trade” and the “other” is “the absolute necessity of imposing restrictions upon Labour.”
Such being the position of economic thought, one naturally turns to Jevons’s posthumous work to learn, in the first place, whether the author had made any essential advance in his own apprehension of the significance of his principlesi and in the second place whether he makes any essentially fresh contribution to the controversy itself, at the stage to which three and twenty years of arguments and investigations have now brought it.
It serves to show in what manner and degree this more scientific wing of the historical school have outgrown the original ” historical ” standpoint and range of conceptions, and how they have passed from a distrust of all economic theory to an eager quest of theoretical formulations that shall cover all phenomena of economic life to better purpose than the body of doctrine received from the classical writers and more in consonance with the canons of contemporary science at large.
Discussions partially covering the field, monographs and sketches there are in great number, showing the manner of economic theory that was to be looked for as an outcome of the “historical diversion.”
ing proof of the vital role which economic concepts play in human life than the egregious blunders into which economists have stumbled through imputing the use of full-fledged modern concepts to primitive men.
That animating pervasive spirit of unresting and unhindered competition, which the older economists adopted and employed as the fundamental basis of their developed systems of speculative reasoning, and approved and recommended as the inspiring and controlling motive of their enabling legislation, seemed to be in actual fact filling the commercial and industrial atmosphere.
A change, which is needed in the interests of the Empire, is not to be burked by any appeal to oldzfashioned discredited doctrine, The reasonings of the economist may possibly be true of the unreal world of abstraction in which he thinks and moves; they are useless or nmischievous guides in those real affairs of actual life with whiclh practical statesmen have to deal.
And, even for this phase of modernized classical economics, it seems necessary to limit discussion, for the present, to a single strain, selected as standing peculiarly close to the classical source, at the same time that it shows unmistakable adaptation to the later habits of th-ought and methods of knowledge.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.775
The history of economic thought, however, in the aspects treated here seems to me to provide one exceedingly important element of the logical situation out of which such a conception can be built.
Economists have often expostulated over the excessive rationalism of the eighteenth century, and it is certainly true that mankind is not the perfect calculator of classical theory.
Many judicious readers will surely share the regret that this work was not limited to the simpler factual sphere instead of being rashly expanded into a project of economic revolution resting on shallow philosophic foundations.
The ” historical ” opposition on the other hand has attacked not so much the conception of rational action itself in its broader sense but rather its specific economic form as dominated by “calculation of advantage.”
Whether the recent discovery by certain economists and politicians of a phenomenon that was common and generally known in the eighteenth century is justification for discarding an economic system based on the profit motive, individual enterprise, and free prices, is a question that every economist must answer for himself.
Moreover to retain a direct connection with the older economics it was necessary to leave a place for a limited r6le of rationality of individual action.
There is one limiting feature of economic doctrine which is perhaps not so generally kept in mind as it should be; namely, that many of the particular doctrines which go to make it up have been devised at some time in the past to meet particular problems which at that time were pressing, and were, accordingly devised with a special angle or slant which needs always to be read into the doctrine if it is to be properly understood.
The suggestion offered here is that for the founders of economic science no such conflict or hiatus existed; and that when their conception of a social mechanism, and the uses they made of it, are fully understood, they will be seen to have opened a way to causal explanation of economic behavior without abdication of the right of criticizing it or the hope of reforming it.
The concern of the economists was, of course, with secular manifestations, but always, nevertheless, with the secular manifestations of that “wonderful contrivance, man, considered not merely as an organized being but as a rational agent.”
A just appreciation of the general methodological issues discussed in the present installment is dependent on an acquaintance with the evidence from the history of economic thought presented in the first.
The adversity of historical development need not spell the end of systematic economic theory, were it not for the fact that nothing in human experience but the drive for a self-regulating market economy ever called for a specifically and purely economic rationality.
Even this rationality has a mercantile flavour; it is not the rationality premissed by Aristotle or Grotius whereby men were capable of living in accordance with rules of social conduct; it is not strong enough to withstand the force of competitive appetites, only strong enough to sh’ow men that they must submit to a sovereign to avoid worse.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. B. Macpherson
0.764
Often enough, what appeared as mercantilistic folly to Adam Smith or as collectivistic folly to Herbert Spencer or the “orthodox” of the 1920’s were perfectly rational actions in the absence of the balancing mechanism of a full-fledged market economy.
This institutional idea of reason and reasonable value is collective and historical, whereas the rationalistic ideas of many other economic writers has been individualistic, subjective, intellectual, and static.
Recognition of the modifying influence of custom was essential: “to escape error, we ought, in applying the conclusions of political economy to the actual affairs of life to consider not only what will happen supposing the maximum of competition, but how far the result will be affected if competition falls short of the maximum.”
In particular, since the capacity for rigorous analysis is not often closely associated with the capacity for economic intuition, it is necessary to distinguish carefully between the two major problems of the history of economic thought.
But the attempt would raise controversial questions in history and ethics as well as in economics; and the aims of our present inquiry are prospective rather than retrospective.21 The deadly sin against logic of abstracting from essentials has been committed here.
It is to be remembered that we are interested here not primarily in a recounting of old controversies but in the detection of the process of doctrine formation and its relation to the problems in economic reality with which these doctrines were concerned.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Erich Roll
0.695
Marked by an almost religious belief in the attainability of perfect competition and in the disastrous, broad results of our fall from grace, this era may well explain why the judicial Rule of Reason has been equated with “the purely economic approach” mentioned above,3 since it is sug- * The author is assistant professor of economics at Beloit College.
It seems that Shaw would have done better to stick to the less paradoxical but more logical classical theory according to which their keep is their value.4 It is possible to find numerous passages in the volume as a whole that are hardly consistent with the abstract theory of political economy set forth in the opening essay.
9 Finally, it must not be overlooked that without the simplifying assumption of the economic man and the rationality of his conduct, the classical economists could not have established their work on a scientific basis.
In the nineteenth century psychological factors invaded theory and somewhat disturbed the automatic mechanisms of classical economics, but the individual has always remained rational: he knows what he wants; he wants what he knows.
We must examine what, in the absence of a better term, we may call “rational motivation,” that is, how the problem of capitalism versus socialism was defined and a decision reached.
“1- Concessions to the forces of rationality, moreover, need not be cast into formal institutional changes to be important and influential, and Soviet economists would seem to have reason to be cheered by continued signs that some of their arguments are influencing the decision processes of economic policy-makers.
It is obviously no easy task to determine the relationships which are bound to exist between the history of economic reasoning and the history of the development of modes of cognition.
What I am criticizing in the Benthamite version is the assumption or expectation of a generally prevailing, very high degree of applied or practical rationality of the same uniform kind or quality, not only in the sphere of all private economic decisions and adjustments, but also and equally in that of all the political, popular, legislative, and governmental decisions involved in the supposedly essentially scientific rational planning of the institutional and legal outer framework of the free economy.
In a world in which reason was not any longer relied upon to teach the rules of lawful and just behavior, a purely mechanical equilibriurn concept borrowed from the natural sciences was resorted to in order to establish a firm starting point for an understanding of the relationships of economic phenomena.
These specifications are derived from the following statements: “Economic man, in the classical abstraction, was a pure rationalist who weighed carefully something called utility and something called disutility .
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. Reinold Noyes
0.704
One might be inclined to infer from the premise that „subjective economic rationalism” has been a significant feature of economic reasoning from the 13 th century to the present that Wirtschaftsgesinnung is to be considered an important element of economic reasoning and/or economic behavior.
Rationality is a primary assumption for the greater part of economic theory, and the advantage obtained by exchange between economic subjects is the classical gospel of economics.
IV I think that at least part of the answer to this critical question is to be found in economics; moreover, economics of the most old-fashioned and familiar kind.
The critics of abstract, rationalistic systems in economics have, for over a hundred years, pointed out the historical and political value premises which underlie this type of theorizing; without, however, clarifying where they seek the Archimedic point from which to lift their own theory - the institutional or historical criticism - beyond ideology.
Among the 200 closest sentences to the cluster’s centroid, 0.5% mention the terms ‘rational’ or ‘rationality’
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The adversity of historical development need not spell the end of systematic economic theory, were it not for the fact that nothing in human experience but the drive for a self-regulating market economy ever called for a specifically and purely economic rationality.
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Nor does this at all invalidate the book’s claim to be unlike and superior to other histories of “economic thought”; for while it neglects nothing of all they may deal with, it distinguishes and shows the relationship between the diverse components of historic patterns of thought in economics and related fields, instead of confusing them into medlies.
There is one limiting feature of economic doctrine which is perhaps not so generally kept in mind as it should be; namely, that many of the particular doctrines which go to make it up have been devised at some time in the past to meet particular problems which at that time were pressing, and were, accordingly devised with a special angle or slant which needs always to be read into the doctrine if it is to be properly understood.
CONCLUSION At best, economic theorizing can be no more than “the quintessence of experience,” and so as the circumstances and events which gave rise to the ideas expressed in the General Theory have passed over the horizon, the book itself has become increasingly dated.
Whatever maay have been the attitude of the popularisers of economic thought, the original thinkers of the time were by no means so intoxicated with the progress of technique that they failed to see that it had its drawbacks.
It merits the attention of every economic theorist, and possibly, still more, it may be full of suggestion to those economic historians who seek to give greater meaning and coherence to their activity than it at present possesses.
Whether the recent discovery by certain economists and politicians of a phenomenon that was common and generally known in the eighteenth century is justification for discarding an economic system based on the profit motive, individual enterprise, and free prices, is a question that every economist must answer for himself.
The suggestion offered here is that for the founders of economic science no such conflict or hiatus existed; and that when their conception of a social mechanism, and the uses they made of it, are fully understood, they will be seen to have opened a way to causal explanation of economic behavior without abdication of the right of criticizing it or the hope of reforming it.
Lessons from the History of Economic Doctrines The student of economic doctrines discovers various ideas reappearing like the pieces of colored glass in a kaleidoscope, the same essentially in detail, but in ever-changing settings.
Some of the early writers on the history of economic thought apparently did not always read the sources.7 Those who have read the several books which Malynes wrote, cannot be harshly blamed if they have misinterpreted what was meant because the style is painfully obscure; moreover, the treatment of any particular subject is frequently scattered through the several tracts.
And yet we may declare without reserve that the economic history of to-day is as different from those early essays, whether of Adam Smith or of other more distant writers, as what has been called the ” science of measurable motives,” with its developed apparatus of fine reasoning, is distinct from the beginnings of that study, which, furnished by the acute and sensible intelligence of the parent of modern economics, serve to part him from his nearer or remoter predecessors.
Since the paramount position of this work in the history of economic doctrines cannot escape the reader who may not yet be acquainted with it, no further commentary is needed here.
The adversity of historical development need not spell the end of systematic economic theory, were it not for the fact that nothing in human experience but the drive for a self-regulating market economy ever called for a specifically and purely economic rationality.
It has often been suggested that these theoretical developments, and the alacrity with which they were accepted, were due to an awareness that the older theories were not adequate to explain the facts of economic life, and that in being modified to ‘-explain’ them internal inconsistency resulted.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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And yet we may declare without reserve that the economic history of to-day is as different from those early essays, whether of Adam Smith or of other more distant writers, as what has been called the ” science of measurable motives,” with its developed apparatus of fine reasoning, is distinct from the beginnings of that study, which, furnished by the acute and sensible intelligence of the parent of modern economics, serve to part him from his nearer or remoter predecessors.
And thus, from an examination conducted in this spirit of the large influence manifestly exerted by the great economists of a former age upon the practice of their day, we can proceed some distance towards a satisfactory conception of the right relations of present economic thought to contemporary conduct.
When we withdraw the actual setting, in which economic history requires us to place the writings of the economists of the past, if we would judge them fairly, and interpret them correctly, and substitute the altered circumstances of the age in which we live, we realise without delay that the connection between economic thought and actual practice must now be differently conceived and represented.
It serves to show in what manner and degree this more scientific wing of the historical school have outgrown the original ” historical ” standpoint and range of conceptions, and how they have passed from a distrust of all economic theory to an eager quest of theoretical formulations that shall cover all phenomena of economic life to better purpose than the body of doctrine received from the classical writers and more in consonance with the canons of contemporary science at large.
In regard to this matter it shook confidence in the shallow dogmatism of the propagandist economists, but it substituted no definite alternative commanding general assent, and accordingly the immediate practical result on economic thought was not to inspire it with a new creed, but to deprive it of all creed, and to replace the art of political economy by the conception of an economic science concerned solely with the ascertainment of the results which flow from certain hypothetical assumptions, and not at all with guiding mankind towards a desirable goal.
Discussions partially covering the field, monographs and sketches there are in great number, showing the manner of economic theory that was to be looked for as an outcome of the “historical diversion.”
If, on the one hand, the modern economist, who does not profess to be a historian, is, as we have seen, influenced in his general habit of regarding economic principles, and even in his mode of handling particular theoretic problems, by that keen, constant appreciation of the importance of actual fact which is the characteristic of historical study, on the other hand historians, who do not claim the special name of economic historians, are prepared to welcome cordially these new adherents to the exalted company to which they belong, and to approve and utilise, where a fitting occasion is presented, the results of such inquiries.
The interpretation of the history of economic theory which I desire to suggest here could not by any stretch of the imagination be regarded as established until all the available literature of the subject had been rehearsed.
Although time has been allowed for the acceptance and authentication of these endeavors of the earlier historical economists in the direction of a system of economic theory,- that is to say, of an economic science, -they have failed of authentication at the hands of the students of the science; and there seems no reason to regard this failure as less than definitive.
By these and similar considerations we arrive at the conclusion that the practical aspects of Economics have altered sensibly since the middle of the preceding century, when a knowledge of the authoritative teaching of economic writers of high repute was considered part of the necessary equipment of an educated man, and an indispensable item in the mental furniture of a competent instructed statesman., The journalist was then accustomed to support his views by reference to the pronouncements of McCulloch, or some other prominent disciple of Ricardo; and the argument was clinched, and the discussion closed, save in exceptional instances, by this appeal.
There is one limiting feature of economic doctrine which is perhaps not so generally kept in mind as it should be; namely, that many of the particular doctrines which go to make it up have been devised at some time in the past to meet particular problems which at that time were pressing, and were, accordingly devised with a special angle or slant which needs always to be read into the doctrine if it is to be properly understood.
Whatever maay have been the attitude of the popularisers of economic thought, the original thinkers of the time were by no means so intoxicated with the progress of technique that they failed to see that it had its drawbacks.
It merits the attention of every economic theorist, and possibly, still more, it may be full of suggestion to those economic historians who seek to give greater meaning and coherence to their activity than it at present possesses.
Whether the recent discovery by certain economists and politicians of a phenomenon that was common and generally known in the eighteenth century is justification for discarding an economic system based on the profit motive, individual enterprise, and free prices, is a question that every economist must answer for himself.
The suggestion offered here is that for the founders of economic science no such conflict or hiatus existed; and that when their conception of a social mechanism, and the uses they made of it, are fully understood, they will be seen to have opened a way to causal explanation of economic behavior without abdication of the right of criticizing it or the hope of reforming it.
Some of the early writers on the history of economic thought apparently did not always read the sources.7 Those who have read the several books which Malynes wrote, cannot be harshly blamed if they have misinterpreted what was meant because the style is painfully obscure; moreover, the treatment of any particular subject is frequently scattered through the several tracts.
III It may be doubted whether, in a discussion which purports to consider the methodological desirability of the course imposed upon present-day economists by the temporal and educational limitations to which they are subject, the “seductive charm” of the economic doctrines in fashion in the first half of the nineteenth century justifies their being placed in the forefront of the argument.
The history of economic thought, however, in the aspects treated here seems to me to provide one exceedingly important element of the logical situation out of which such a conception can be built.
In a forthcoming volume I shall deal with the question in a still wider perspective of the history of thought which will place the question of the status of economic theory more accurately in its larger context of the methodology of the social sciences as a total group.
Lessons from the History of Economic Doctrines The student of economic doctrines discovers various ideas reappearing like the pieces of colored glass in a kaleidoscope, the same essentially in detail, but in ever-changing settings.
The adversity of historical development need not spell the end of systematic economic theory, were it not for the fact that nothing in human experience but the drive for a self-regulating market economy ever called for a specifically and purely economic rationality.
It has often been suggested that these theoretical developments, and the alacrity with which they were accepted, were due to an awareness that the older theories were not adequate to explain the facts of economic life, and that in being modified to ‘-explain’ them internal inconsistency resulted.
The thesis here is that, historically seen, economic theory, like other bodies of thought, e.g., philosophy or the natural sciences, does not consist of an elaboration of a priori ideas, but represents attempts to formulate the structural characteristics of given situations in order to make proposals for the solving of the problems contained and manifested in these ohne immer von Adam und Eva beginnen, uns durch veraltete Kontroversen dturchbeissen und gegen primitive Missversthndnisse sichern zu mUssen - zu neuen Taten ausziehen ko5nnen.”
Economic history may provide grappling irons with which to lay hold of areas on the fringe of economics, whether in religion or in art, and with which, in turn, to enrich other subjects, as well as to rescue economics from the present-mindedness which pulverizes other subjects and makes a broad approach almost impossible.2’ Economic history demands the perspective to reduce jurisdictional disputes to an absurdity.
Thus the dominant characteristic of the dominant type of economic theorizing in the period under review is well brought out by the essays: this has been the period of the clever gadget and the plausible surmise-the age of the easy answer.
There had been in the writings of Adam Smith and Malthus and of some of their Scotch and German predecessors much incidental use of economic history and of observation of contemporary economic life; but the tendency to abstract theorizing, admittedly taken over from the Physiocrats, continued increasingly predominant in England and on the Continent from the founding of modern Political Economy.
It is to be remembered that we are interested here not primarily in a recounting of old controversies but in the detection of the process of doctrine formation and its relation to the problems in economic reality with which these doctrines were concerned.
Nor does this at all invalidate the book’s claim to be unlike and superior to other histories of “economic thought”; for while it neglects nothing of all they may deal with, it distinguishes and shows the relationship between the diverse components of historic patterns of thought in economics and related fields, instead of confusing them into medlies.
CONCLUSION At best, economic theorizing can be no more than “the quintessence of experience,” and so as the circumstances and events which gave rise to the ideas expressed in the General Theory have passed over the horizon, the book itself has become increasingly dated.
Since the paramount position of this work in the history of economic doctrines cannot escape the reader who may not yet be acquainted with it, no further commentary is needed here.
On examining the major systems of economic thought which we have inherited from the past, we actually find them rooted in the conditions and inspired by the problems of the time in which their authors lived.
The vision of streams of fragmentary pieces of economic analysis springing from the treatises of moral philosophers and the ad hoc utterances of administrators and pamphleteers and culminating in the eighteenth century in the discovery of the system in economic life, is a fine one and opens up grand perspectives.
In dealing with the history of economic thought, it is not enough to know the writings of the economists; one must also know something with the abundance or scarcity of money.
The advancement of economic doctrine, especially since the days of Menger and Jevons and within the world of ideas which since their day economists have inhabited, has been dependent on attitudes of mind and on a method of investigation as clearly differentiated from that of historians or anthropologists as any intellectual process can be.
The cluster gathers 472 sentences from our corpus. It represents 0.29% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are Walton H. Hamilton (33 sentences), Wesley C. Mitchell (26 sentences), J. M. Clark (21 sentences), H. J. Davenport (15 sentences), Lewis H. Haney (15 sentences), Charles J. Bullock (11 sentences), Z. Clark Dickinson (11 sentences), S. Leon Levy (10 sentences), John Cummings (9 sentences), F. Lavington (8 sentences).
The most recurring journals are The Quarterly Journal of Economics (151 sentences), Journal of Political Economy (148 sentences), The American Economic Review (99 sentences), The Economic Journal (74 sentences).
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Top sentences with ‘rational’ or ‘rationality’ of the cluster
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Our economic theory is less an account of what men actually do than a statement of what it is rational for them to do, as seen by a shrewd fellow- citizen.
Now the point of most essential interest in the study of man and wealth, and the point to which Jevons at once turns, is not a disconnected series of decisions, but the relation between them?
Presuppositions of religion, of natural law, of philosophy, and of natural-rights ethics concurred to stamp the economic process as fundamentally rational and beneficent, to obscure and even to deny the distinction between the social and the competitive, and to assume and even to assert the necessary parallelism between the private interest and the aggregate good.
We return then to this: the play of economic forces distributes wealth in a certain rational way, according with the efficiency in production of the various factors, and whatever we may, as moralists, think on seeing a sempstress paid six shillings a week while an engineer gets fifty thousand a year, we must recognise the difference in intelligence; and that in some rough way the distribution tends to bring out the best in industry, and cause wealth to grow; further, that the payment of interest on past savings is an essential part of the same scheme for the promotion of wealth in the community.
The writer inclines to the belief that the facts here stated justify the assumiption that the large combination directed by non- responsible hands will not be as effective in the end of reaching most economic production as was the old system of free competition and individual, responsible leadership.
Our assumptions, of men’s efforts to get the greatest wealth for the least sacrifice, rationality in the application of means to this end, diminishing utility, etc., are sufficiently true of the general run of people in the modern states; and we have not had to wait on the development of the whole formula of economic progress before being able to give quite helpful advice upon such things as railroad rates, the currency and the tariff.
But in any system of artificial creation of holdings, faulty human judgment, or, perhaps, political or private considerations, take the place of the natural selection, which selection in itself arises out of the same economic laws on which are based the whole of the remaining working-out of the system.
The point here to be insisted on is this: that, if the activities in dispute are really economic, it can only be because there exists a more radical and fundamental principle of division among egoistic activities than the one I have utilized.
Those men like Professor Parker and like Professor Fisher who see a conflict between man’s inherited instincts and present living conditions are justified in pressing vigorously for such changes of our present institutions as will accord on the one hand with the original nature of man, and on the other hand with our present notions of productive efficiency.
What economic value stands as the basis of this power may be most varied and indefinite, but the explanation of the efficacy of this collected capital lies far away from the possession of concrete instruments.
phers insisted that the world had been so contrived that the interests of all were best served by allowing each to pursue his own personal advantage.1 Translating this into their own thought, economists found social interests inseparably associated with the right of each individual to be guided by his own immediate pe?
Yet it is susceptible of proof that both assertions are true, and that each statement of the law miay be merged iPto a higher synthesis What this article will attempt to show is not so much that the value with which economics deals is essentially social, but that the corollaries of this statement, hitherto much neglected, serve to illumine some dark corners of economic theory.
We can, and do, use our intellectual powers, our physical powers, and the powers of nature, mechanically adapted, for the enhancement of our well-being; but economic activities refuse to group themselves under any one of these headings, as all these forces are alike exercised in individual, social, and economic activities.
We are then brought face to face with the difficulty already suggested that those improvements in method and in appliances, by which man’s power over nature has been acquired in the past, are not likely to continue with even moderate vigour if free enterprise be stopped, before the human race has been brought up to a much higher general level of economic chivalry than has ever yet been attained.
Economic matters are settled, not merely by the self-regarding forces which we have hitherto emphasised, but also by social conceptions, embodied in public opinion and class notions of what is right and proper, which defy expert analysis and any accurate evaluation as -influences.
But, having gone so far in admitting the relativity of economic laws, we must urge, on the other hand, in partial justification of the existing order, that, if the Darwinian theory has any applicability to society and social institutions,-and it is generally admitted that it has,-it would indicate, not that present institutions, being a comparatively recent and isolated development, may therefore be lightly swept aside, but, rather, that they exist because they are more fit than those which they have superseded.
Among the 50 closest sentences to the cluster’s centroid, 6% mention the terms ‘rational’ or ‘rationality’
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We return then to this: the play of economic forces distributes wealth in a certain rational way, according with the efficiency in production of the various factors, and whatever we may, as moralists, think on seeing a sempstress paid six shillings a week while an engineer gets fifty thousand a year, we must recognise the difference in intelligence; and that in some rough way the distribution tends to bring out the best in industry, and cause wealth to grow; further, that the payment of interest on past savings is an essential part of the same scheme for the promotion of wealth in the community.
Presuppositions of religion, of natural law, of philosophy, and of natural-rights ethics concurred to stamp the economic process as fundamentally rational and beneficent, to obscure and even to deny the distinction between the social and the competitive, and to assume and even to assert the necessary parallelism between the private interest and the aggregate good.
Our assumptions, of men’s efforts to get the greatest wealth for the least sacrifice, rationality in the application of means to this end, diminishing utility, etc., are sufficiently true of the general run of people in the modern states; and we have not had to wait on the development of the whole formula of economic progress before being able to give quite helpful advice upon such things as railroad rates, the currency and the tariff.
Top sentences (in general) of the cluster’s centroid
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We return then to this: the play of economic forces distributes wealth in a certain rational way, according with the efficiency in production of the various factors, and whatever we may, as moralists, think on seeing a sempstress paid six shillings a week while an engineer gets fifty thousand a year, we must recognise the difference in intelligence; and that in some rough way the distribution tends to bring out the best in industry, and cause wealth to grow; further, that the payment of interest on past savings is an essential part of the same scheme for the promotion of wealth in the community.
But the more we analyse the life of society the less can we rest upon the “economic harmonies”; and the better we understand the true function of the “market,” in its widest sense, the more fully shall we realise that it never has been left to itself, aind the more deeply shall we feel that it never must be.
In order that it may be used to justify private property and free competition to the fullest extent, on the ground that under these institutions the community’s productive resources automatically are devoted to supplying the goods which are most urgently wanted, it is necessary to assume that the larger money offer always means the greater human want.
Economic matters are settled, not merely by the self-regarding forces which we have hitherto emphasised, but also by social conceptions, embodied in public opinion and class notions of what is right and proper, which defy expert analysis and any accurate evaluation as -influences.
At the very threshold of economic analysis we are met by the troublesome concept of “wealth,” and almost immediately, as we attempt to gain a measurable material with which to work, we realize that what is regarded as wealth by the individual is not necessarily regarded as wealth from the point of view of the whole group of which the individual is a member.
Now the point of most essential interest in the study of man and wealth, and the point to which Jevons at once turns, is not a disconnected series of decisions, but the relation between them?
We can, and do, use our intellectual powers, our physical powers, and the powers of nature, mechanically adapted, for the enhancement of our well-being; but economic activities refuse to group themselves under any one of these headings, as all these forces are alike exercised in individual, social, and economic activities.
So all the needs, appetites, passions, tastes, aims, and ideas which the various things comprehended in the word “wealth” satisfy, are lumped together in political economy as a principle of human nature, which is the source of industry and the moving principle of the.
Yet it is susceptible of proof that both assertions are true, and that each statement of the law miay be merged iPto a higher synthesis What this article will attempt to show is not so much that the value with which economics deals is essentially social, but that the corollaries of this statement, hitherto much neglected, serve to illumine some dark corners of economic theory.
Now there is a general agreement among thoughtful people, and especially among economists, that if society could award this honour, position, and influence by methods less blind and less wasteful; and if it could at the same time maintain all that stimulus which the free enterprise of the strongest business men derives from present conditions, then the resources thus set free would open out to the mass of the people new possibilities of a higher life, and of larger and more varied intellectual and artistic activities.
phers insisted that the world had been so contrived that the interests of all were best served by allowing each to pursue his own personal advantage.1 Translating this into their own thought, economists found social interests inseparably associated with the right of each individual to be guided by his own immediate pe?
According to that author mankind, from an economic viewpoint, is supposed to be dominated by a single motive-the desire to accumulate more and more wealth ’ Cf.
Only in this sense is free competition the basic principle of our economic order; more accurately, it is not competition, but the pursuit of gain of the individual when free to develop, which organizes existing economic society, i. e., the provision for all through the processes of exchange.
Presuppositions of religion, of natural law, of philosophy, and of natural-rights ethics concurred to stamp the economic process as fundamentally rational and beneficent, to obscure and even to deny the distinction between the social and the competitive, and to assume and even to assert the necessary parallelism between the private interest and the aggregate good.
The cluster gathers 171 sentences from our corpus. It represents 0.11% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are J. Viner (13 sentences), W. J. Ashley (8 sentences), H. J. Davenport (7 sentences), L. L. Price (7 sentences), Jacob H. Hollander (6 sentences), R. B. Haldane (6 sentences), Wesley C. Mitchell (6 sentences), Edwin R. A. Seligman (5 sentences), Thorstein Veblen (5 sentences), Walton H. Hamilton (5 sentences).
The most recurring journals are Journal of Political Economy (65 sentences), The Economic Journal (47 sentences), The Quarterly Journal of Economics (34 sentences), The American Economic Review (25 sentences).
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TF-IDF
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
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Political economy not only recognizes but exaggerates individual rationality, assuming an almost ideal efficiency in it, while at the same time the correlative phenomenon of collective rationality is left out in the cold.
To a mind as rigidly logical as his own it seemed an obvious truism that if political economy was to be studied at all it must concern itself, in the same sense as chemistry and geology were being pursued, with a definite subject-matter and employ as orderly a manner of reasoning.
The bonds which tie political economy to an out-of-date rational hedonistic psychology and its appropriate logical method of investigation are not indissoluble.
To state it otherwise, political economy assigns a great sphere to rational control in its individual aspect, making this a part of its system, but ignores, or sets apart as interference, the same thing in its collective aspect.
This position, here outlined with as little qualification as may be admissible, embodies the general metaphysical ground of that classical political economy that affords the point of departure for Mill and Cairnes, and also for Jevons.
When Fisher has carried it out to its logical perfection and has I Stanulaue Co. v. San Joaquwn and K. Rvver Canal and 1rrzatzon Co., 192 U. S. 201, QUARTERLY JOURNAL OF ECONOMICS boldly accepted all of its implications, we are in a position to discover those grounds on which it is able for a time to pass off as political economy.
This rich storehouse of industrious erudition and comprehensive criticism is now being eagerly ransacked by interested politicians on the alert for a telling argument or an apt retort, and the meditations and conclusions of the study are thus brought into the market-place, with or without the approval or the acquiescence of their authors.
Mr. Wicksteed, himself a disciple of Jevons, has clearly shown in his Common SenBe of Political Economy, that the notion of “marginal significance” retains as much validity when instincts and habits are counted among the forces governing men in their economic relations as when only “economic men,” actuated solely by a reasoned pursuit of a maximum of pleasure, are postulated.
In the political, as in the physical world, there is a vis inertiae to be reckoned with; the weight of the accumulated tradition, opinion, and practice of two centuries was not to be lightly set aside at the bidding of an untried government, however great might be the value of the trade it had to offer.
URNAL OF POLITICAL ECONOMY In view of the foregoing, it may, upon the face of it, seem captious to put in question the “moreness” or “lessness” of one man’s pleasures or pains as compared with another’s.
And it must be remembered that, in thus being taken over into practical politics, political economy lost altogether the hypothetical character which its more cautious exponents attributed to it; its conclusions were no longer remembered to require ” verification ” ; ” other considerations besides the purely economic” were left to the other side to point out; and economic principles were regarded as rules directly and immediately a.pplicable to existing circumstances.
In the Postulates of English Political Economy we find, for example, that Political Economy, dealing with matters of “business,” assumes that man is actuated only by motives of business.
Now how far a theory of political economy is possible that should include an adequate doctrine of process no man can say; no worthy adventure is certain of success; but I see no reason to suppose that the difficulties of this one are insuperable.
Positive Theory of Capital, 9. t To many of us it seems a positive hindrance to the fair fame of political economy now that its professors should talk of a ” calculus of pleasures and pains,” as if that were the foundation on which all economical theory must rest.
There is a curious reminiscence of the perfect taxonomic day in Mr. Keynes’s characterization of political economy as a ” positive science,” ” the sole province of which is to establish economic uniformities”; f and, in this resort to “Interest” is, of course, here used in the sense which it has in modern psychological discussion.
That the activities of governmnent must depend upon circumstances is well illtustrated by a few meaty extracts from his Science of Finance: It is futile to urge disarmamient, and the consequent extinction of the military budget, so long as there conitinues to be a conflict of legal ideas.
Recognizing that human nature after all determines the manner in which theories must work, and remembering that astute politicians, backed by selfish business interests, have in the past operated in both political parties for the perpetuation of their power, remembering how they simply played upon the jealousies of rival factions to keep their control, let us refrain from enlarging their opportunities.
2 Senior, Political Economy; Cairnes, Character and Logical Method of Political Economy; J. S. Mill, System of Logic and Essays on Some Unsettled Questions of Political Economy; Jevons, Pure Logic and Principles of Political Economy.
And it must be remembered that, in thus being taken over into practical politics, political economy lost altogether the hypothetical character which its more cautious exponents attributed to it; its conclusions were no longer remembered to require ” verification ” ; ” other considerations besides the purely economic” were left to the other side to point out; and economic principles were regarded as rules directly and immediately a.pplicable to existing circumstances.
To a mind as rigidly logical as his own it seemed an obvious truism that if political economy was to be studied at all it must concern itself, in the same sense as chemistry and geology were being pursued, with a definite subject-matter and employ as orderly a manner of reasoning.
AN EMINENT ECONOMIST CONFUSED THE writer of this note has recently had called to his attention Professor Carver’s new and interesting Principles of Political Economy.
When Fisher has carried it out to its logical perfection and has I Stanulaue Co. v. San Joaquwn and K. Rvver Canal and 1rrzatzon Co., 192 U. S. 201, QUARTERLY JOURNAL OF ECONOMICS boldly accepted all of its implications, we are in a position to discover those grounds on which it is able for a time to pass off as political economy.
That the great field for research in political economy lies in the analysis of that vast proportion of economic phenomena which are predominantly objective in character, recent tendencies in economic literature and in the scientific activities of economists amply demonstrate.
Where political economy is used as a weapon, whether to attack or to defend the existing order of things, where it is harnessed in the service of party, it necessarify loses the attributes essential in every science-those attributes which British economics possess in so eminent a degree, and which we can but contemplate with envy-serenity and unity.
The practical usefulness of economic theory is not in private business but in politics, anid I for one regret the disappearance of the old name ” political economy,” in which that truth was recognised.
The cluster gathers 847 sentences from our corpus. It represents 0.52% of all the sentences selected over the whole period.
The community exists from 1900 to 1969.
The most recurring authors are Harry Gunnison Brown (19 sentences), M. M. Kelso (13 sentences), Frank A. Fetter (12 sentences), H. J. Davenport (12 sentences), E. G. Nourse (11 sentences), F. Y. Edgeworth (11 sentences), Edwin R. A. Seligman (10 sentences), H. C. M. Case (9 sentences), J. Wilczynski (9 sentences), Richard T. Ely (9 sentences).
The most recurring journals are Journal of Farm Economics (321 sentences), The American Economic Review (83 sentences), The Quarterly Journal of Economics (82 sentences), Journal of Political Economy (81 sentences), The Economic Journal (76 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
farm
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parity
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Top TF-IDF terms describing the community for each time window
Top terms 1900-1919
Token
TF-IDF
land
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Top terms 1920-1939
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Top terms 1940-1949
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Top terms 1950-1959
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Top terms 1960-1969
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0.0014424
malthus
0.0014109
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Year
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Implications If the foregoing analysis is indicative of the general picture, it helps explain the behavior of farmers who might be judged irrational on strict price and cost grounds.
J. Lewandowski states that for a choice to be made between the various methods of increase in production, in accordance with the principles of rational administration, all factors of production, which includes land, must have a price.
This remark does not express a farmer’s prejudice, but a purely rational idea - rational from the point of view of the village as well as of the national economy.
It may be granted also that in some branches of current economic activity-say, agricultural production under what amounts to a system of ” peasant proprietors “-it is conceivable that the individual in charge of the economic unit is actually in continuing doubt as to what part of his crop he intends to sell, and what part he intends to consume.
It should be noted, however, that the acceptance of the claim that farm operators are economically rational and are “efficiently” allocating the resources at their disposal, does not necessarily entail belief in “efficient” resource allocation at the sector level.
We have become aware that the conventional references to economic behavior are not only incomplete, that the division between land, capital, wages, etc., is not only a scanty list of economic groups at action, but actually misleading in tempting one to generalize about them.
Accepting this, one was led to understand the resulting constraints upon producer decisions as being objectively imposed by the necessity to survive’-in other words as constraints that were as essentially “arithmetical” and inescapable as the income constraints operative upon consumers, in no way depending on any partial moratorium on impulsive or habit-following decisions, or on any particular state of the decision-maker’s knowledge.
It is always for the sake of increased utilities that division of labor is resorted to, that exchange is resorted to, that valuation becomes the efficient and prominent expedient for the distribution of utilities, but only the expedient.
A farm organization economist must come to recognize that economic reasoning is only one of a number of factors that govern conclusions and choice of means.
5 However, the failure of the marketed agricultural surplus to grow in this case is a result of ” rational ” economic behaviour of the peasant, not the perverse consequence of irrational behaviour.
Rationality for a farm business in a thoroughly market-oriented economy may differ from rationality in the situation in which the Indian peasants find themselves.
They implicitly assume that activities which are not rational by business standards are irrational, and that the peasant cultivator would be better off if he changes his practices to conform with the rationale of business.
The old classification of the material things composing wealth, into land and capital, is admitted to be impossible for some purposes, and only justifiable for others by reasoning th is foreign to the Ricardian treatment.
VI Since, depending on the premises that one uses, abstract reasoning leads to either the belief or disbelief in prices as a significant tool for inducing a proper allocation of resources within American agriculture, the foregoing discussion, which leads to a disbelief, indicates that inquiry is needed along two lines.
The general acceptance of the “doctrine of irrational behavior” has been a facile excuse for economists to sidestep the analysis of criteria used to make farm production decisions in less-developed areas.
4 In a later edition he reiterates some of these views, but thinks that he has made an important emendation of the Ricardian theory, by calling attention to the difference of situation rather than of fertility as an explanation of rents -being here a forerunnier of Von Thuinen and many later critics.
18-20. observe that farmers want freedom and progress as well as price stability, but we do not conclude that since those are value judgments too, economic science can say nothing about how those conflicting values can be reconciled.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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Title
Year
Journal
Authors
Centroid Similarity
It is always for the sake of increased utilities that division of labor is resorted to, that exchange is resorted to, that valuation becomes the efficient and prominent expedient for the distribution of utilities, but only the expedient.
The old classification of the material things composing wealth, into land and capital, is admitted to be impossible for some purposes, and only justifiable for others by reasoning th is foreign to the Ricardian treatment.
4 In a later edition he reiterates some of these views, but thinks that he has made an important emendation of the Ricardian theory, by calling attention to the difference of situation rather than of fertility as an explanation of rents -being here a forerunnier of Von Thuinen and many later critics.
Economic anatomy is not minutely studied by those who are absorbed in the practical pursuits of making or of taking monley; and the nice distinction between ” proper ” and ” quasi- ” rent is not so familiar to either of the parties as to form a limit to the fears of the one and the rapacity of the othier.
In the first case certain branches of our agriculture had to pay the price, in the second case certain branches of our manufactures: therefore, opposition from various sides must be overcome.
That the enthusiasm for it in the commercial sections of the country was heightened by the expectation of private profits there can be no doubt; that grave apprehensions existed in the agricultural sections lest it should cripple their trade by raising the ccjst of transportation is equally certain ; but the law resulted neither from the selfish machinations of one interest nor the foolish altruism of the other, nor was it brought about ?
A passage from such a lecture, that ” much of what properly belongs to profit and rent is generally included under wages,” was quoted by Whately in his Logic, and led Cotterill to attempt to analyse the rent element in wages.2 The variety in the genius of different men, thinks Cotterill, is much the same as varieties in the quality of land.
It seems to be generally admitted thatfalker’s masterly portrait of the industrial captain was not improved by his representation of profits as rent.2 Having now considered the party that takes factors of production in return for products, or the proceeds thereof, let us look at the other side of the counter,-the triangular counter across which we may imagine the three factors of land and labor and capital to be exchanged, if we place in the interior of the triangle an entrepreneur of Walker’s type, our second species, dealing with three parties in quick succession, and in some sense simultaneously.3 At the height of abstraction from which it is here attempted to survey the economic world, what appears the most salient feature in the transactions respecting land is the circumstance that the quantity of ground, or at least space,4 is limited, not capable of being increased ’ As argued by the present writer in his Address to the British Association for the Advancement of Science, 1889, written before the publication of Professor Marshall’s weightier judgment in the Principles of Economics.
-the rational explanation of rent, interest, and wages- has been a sea of raging storms; it has endured while the theory of value, which Mill regarded as so nearly perfect even in his day, has been subjected to extensive revisions in phraseology, if not in subs.tance; and while even the theory of prices, so muc’h more nearly related to that of international markets, has been subjected to attack.
If the foregoing considerations are to the point, adequate explanation is presented for the classical habit of confining the field of economics to a study of the production, distribution, and consumption of wealth, wealth being taken to mean tangible material goods; for the restriction of production to the bringing about of material results; for the construction of categories of material factors based upon material items of equipment; and for the distribution of this store of equipment into material non-land equipment on the one hand as over against land equipment on the other hand.
So, if Professor Hollander is satisfied to believe that the law of increasing returns, rightly induced, deduced, and verified, is merely the obverse of the law of diminishing returns, or that he may hold that any or all of the five different sorts of land differentials can have no part in price determination, or that there are the indicia of right scientific method in Cairnes’s doctrine of non-competing groups-where, if the members are in one vocation, they compete but get wages disproportional to pains, and if in different vocations, may get proportional wages but cannot compete-he is justified in his appraisal of the methods by his appraisal of the conclusions.
H. J. Davenport , W. H. Hamilton , Richard T. Ely , Irving Fisher , B. M. Anderson, Jr.
0.661
The hint here given, that the rent of lands depends not upon their differing technical fertility, but upon their proximity to markets, is subsequently developed into one of the mathematical formulae whose definiteness appealed so strongly to Petty’s mind. ”
It may be granted also that in some branches of current economic activity-say, agricultural production under what amounts to a system of ” peasant proprietors “-it is conceivable that the individual in charge of the economic unit is actually in continuing doubt as to what part of his crop he intends to sell, and what part he intends to consume.
We have become aware that the conventional references to economic behavior are not only incomplete, that the division between land, capital, wages, etc., is not only a scanty list of economic groups at action, but actually misleading in tempting one to generalize about them.
In the light of this evolution the society of producers appears to acquire considerable importance as an early exposition of the principles of rationalization.
All open minded students must ultimately reach the conclusion that the abnor mal price phenomena of war time are but the modified results of unchanging laws which still obtain in peace time ; and that the phe nomena of agriculture and “business,” so-called, interact, neither set being wholly cause or wholly effect.
And it is in that attitude of mind that the producer, with the exception possibly of the Cotton Trade, which has always been a law to itself, will approach the question of rationalisation.
I claim for Malthus a profound economic intuition and an unusual combination of keeping an open mind to the shifting picture of experience and of constantly applying to its interpretation the principles of formal thought.
I do not suggest that this characteristic attitude of mind is the only or even the primary cause of the rationalisation in agriculture which is taking place so rapidly in the United States.
In the first instance, if our plans fail, we can change our minds and no great harm will ensue; 5 Agrarian philosophy in Canada was greatly influenced by the findings of “The Royal Commission on Price Spreads.”
By others, more optimistic in temperament or more logical in their analysis of the situation, it has been looked upon as a normal element in the economic system, a means whereby the young man not yet possessed of capital for purchase could obtain the use of land and start at once upon the career of an independent farmer.
The importance of maintaining forms of economic organization adapted to the life of the farm, the hamlet, the village, and the town may be wholly obscured by the false notion that the unrestrained operation of forces generated by a particular, and by no means perfect, type of economic organization may be relied upon to produce satisfactory results, provided only that the adjustments to these forces are carried to their full and logical effect.
In the second place, the writer’s assertion that the acceptance of the actual investment basis, as distinct from reproduction cost, need not necessarily result in an illiberal rate of policy is construed by the reviewer to involve the necessity of allowing “higher current earnings” under all conditions, in order “to compensate the railroads for not permitting them to enjoy the to-be-expected increased value of their land, when such enjoyment is permitted in all other lines of business.”
VI Since, depending on the premises that one uses, abstract reasoning leads to either the belief or disbelief in prices as a significant tool for inducing a proper allocation of resources within American agriculture, the foregoing discussion, which leads to a disbelief, indicates that inquiry is needed along two lines.
To be sure the earlier land economists had moral scruples and these sometimes are aired but they did not on the whole give broad recognition to the fact that society determines its ends as a dynamic process.
Conrad H. Hammar , R. R. Renne , Harry C. Woodworth, Harry A. Steele
0.662
The foregoing argument is presented as a methodological sermon, with the dual purpose of demonstrating that Mill’s fourth proposition is neither fallacy nor paradox, but a crude statement of an important economic truth, and illustrating the fallacy of hunting fallacy by testing the statements of one theoretical structure against the conclusions of another.
This reference to “rational agriculture,” his suggestion to meet the farmers’ price troubles by “successive withdrawals of the least productive farms,” and the proposal to forecast the number of farmers needed in agriculture, seem strange from one who condemns economic planning as a step to dictatorship, ridicules forecasters as “business prophets,” and dismisses economic forecasting as a “fatalistic surrender to the cold curves of mathematics.”
If I had chosen to talk about a long-run program for American agriculture, then I suppose that I could have dealt with my subject in a “rational” manner.
It is from this point of view that the conclusion is reached that, since we are not ready to crawl into our holes and count mere existence life, we shall need leaders capable of making plans which involve not only agricultural economics, but all economics, plus what our predecessors had in mind when they were laying the foundation of the branch of learning which they called “political economy.”
In thus seeing, on the one hand, the larger operator’s progressive adoption of more efficient practices, and, on the other hand, failing to see the state of mind which causes him to hold technological operations within the limits of maximum profits, the family farmer very logically concludes that the larger operator has reached his greater success solely through following the same governing principle that the family farmer himself is following.
There is a competitive impulse which is individualistic, persistent, aggressive, distrustful of rivals and not too rational in its self-seeking.11 This picture of psychological traits is clearly drawn with industrialists in mind and has no application to farmers, just as the “produce-exchange” concept, and reasoning based on it, applies to agriculture and is not pertinent to the industrial pricing problem here at issue.
But this does not excuse the farmer from making decisions based on economic facts and inferences,-decisions applied to the internal management of his own business, and decisions applied to the social problems of the community, the state, the nation or the world.
It is neither desired, nor would it be fair, to expect that there should be no sacrifices, but a reasonable compensation for property owners would be a small price to pay for the large-scale expansions of production in general which are anticipated to follow the downfall of restrictionism. ”
Yet I do wish the reader to ask himself seriously whether it is not probably true that very many of those conservative business men and economists who profess themselves most strongly opposed to socialistic regimentation, would rather risk the triumph of socialist or communist ideology, than to give up-through the public appropriation of the rent of land-those elements in our land system which are really inconsistent with the economic ideals to which they give lip service.
“Of course, we ought to be rational about farm production and not waste scarce labor and scarce steel and scarce chemicals in producing things that we already have in abundance.
Why should they not recognize that individual activity in the urban land market is more often non-rational than rational, that by-products are more significant in urban land use than in most other sub-areas of economics, that measures of public regulation, direction and action are not only desirable but, in fact, are now major factors in urban land use, development and redevelopment?
Implications If the foregoing analysis is indicative of the general picture, it helps explain the behavior of farmers who might be judged irrational on strict price and cost grounds.
A farm organization economist must come to recognize that economic reasoning is only one of a number of factors that govern conclusions and choice of means.
Rationality for a farm business in a thoroughly market-oriented economy may differ from rationality in the situation in which the Indian peasants find themselves.
They implicitly assume that activities which are not rational by business standards are irrational, and that the peasant cultivator would be better off if he changes his practices to conform with the rationale of business.
18-20. observe that farmers want freedom and progress as well as price stability, but we do not conclude that since those are value judgments too, economic science can say nothing about how those conflicting values can be reconciled.
Answers to the tough problems in land economics, the economics of development, production and marketing controls have a tendency to turn on value judgments involving something other than the economists pet efficiency norm.
There is certainly reason to doubt their policy on other grounds, that is, on the ground of the wealth which you sacrifice to attain this particular object; but I cannot, without violating what appear to me to be some of the most fundamental principles of Political Economy, believe, that an increase in the relative demand for home corn will not produce an increase in the relative supply.
If the farmer believes that ploughing this amount of capital back into the land would yield a larger present value of future income than he could obtain by investing it in alternative ways, then he would be acting rationally if he decided to maintain his land’s productive capacity.
“4 If logical action is expected, then it would appear that emphasis must be extended in the direction of helping farmers to learn how to arrive at rational decisions.
A farmer’s lack of knowledge that a specific price decline is coming may be a restriction on freedom, but no more than is his lack of knowledge of a forthcoming price rise a restriction on freedom.
economists, as noted later, have been devoting much With the one exception of agriculture, the economic time and effort to devising adequate criteria of choice plans for each sector taken in isolation seem reason- between alternative investments, ably realistic.
It is the principal purpose of this section to demonstrate that the demand of farmers for more labor than an outside observer would think they require is a rational response to the peculiar circumstances of the harvest, and is largely independent of the effect that the supply of labor may have upon its price.
J. Lewandowski states that for a choice to be made between the various methods of increase in production, in accordance with the principles of rational administration, all factors of production, which includes land, must have a price.
This remark does not express a farmer’s prejudice, but a purely rational idea - rational from the point of view of the village as well as of the national economy.
It should be noted, however, that the acceptance of the claim that farm operators are economically rational and are “efficiently” allocating the resources at their disposal, does not necessarily entail belief in “efficient” resource allocation at the sector level.
Accepting this, one was led to understand the resulting constraints upon producer decisions as being objectively imposed by the necessity to survive’-in other words as constraints that were as essentially “arithmetical” and inescapable as the income constraints operative upon consumers, in no way depending on any partial moratorium on impulsive or habit-following decisions, or on any particular state of the decision-maker’s knowledge.
5 However, the failure of the marketed agricultural surplus to grow in this case is a result of ” rational ” economic behaviour of the peasant, not the perverse consequence of irrational behaviour.
The general acceptance of the “doctrine of irrational behavior” has been a facile excuse for economists to sidestep the analysis of criteria used to make farm production decisions in less-developed areas.
Although we have directed our attention to a specific case of a group of peasant farmers in an underdeveloped area, the approach and techniques we use can be applied to the measurement and testing of economic rationality in any context.
109-110, and Alfred Dean, Herbert A. Aurback and C. Paul Marsh, “Some Factors Related to Rationality in Decision Making Among Farm Operators,” Rural Sociology, Vol.
Among the 250 closest sentences to the cluster’s centroid, 6% mention the terms ‘rational’ or ‘rationality’
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If improvement in agricultural policy is to remain as one of the major goals of the profession we must continue to ask “whose valuations” when confronted with statements which form an obstacle to a more rational agricultural policy.
The reflection of the price of land in the price relations of relevant products does not represent the mere requirement to “pay’ rent within the society; it should rather contribute to the improvement of price formation and, through prices, to the rationalization of production, utilization of production reserves and, consequently, to the growth of labor productivity.
Conditionally normative projections of maxima resting on postulates of rationality and omniscience derive from this all-too-human drive on the part of agricultural economists-for they are men, toos-for intellectual tidiness, for certainty, for analytical elegance.
What is more fundamental as a basis for a rational working out of policy than an understanding of the farmer’s own economic situation and the problems and conditions which confront him, both external and internal to his own business?
There is a competitive impulse which is individualistic, persistent, aggressive, distrustful of rivals and not too rational in its self-seeking.11 This picture of psychological traits is clearly drawn with industrialists in mind and has no application to farmers, just as the “produce-exchange” concept, and reasoning based on it, applies to agriculture and is not pertinent to the industrial pricing problem here at issue.
This remark does not express a farmer’s prejudice, but a purely rational idea - rational from the point of view of the village as well as of the national economy.
TOWARDS RATIONALITY IN LAND ECONOMICS 557 national product and the optimum utilisation of resources from the standpoint of the maximisation of social benefit.”
Mr. Hogg concludes by saying that the purpose of his Note ” is not to deny the phenomena ” to which we drew attention, but rather to suggest that we should not allow our ” antagonism ” to the marketing boards ” to over-emphasise the economic rationality of peasant producers.”
J. Lewandowski states that for a choice to be made between the various methods of increase in production, in accordance with the principles of rational administration, all factors of production, which includes land, must have a price.
In view of the combined effect of the above factors, it may be hypothesized that investment in additional land rather than investment in the intensification of production on current holdings has been a rational economic choice for the individual farmer even though, from a national development standpoint, it is a nonproductive investment.
And where they are conflicting, the choice is not between one end or the other, but between a higher degree of attainment of the one at the expense of a lower degree of attainment of the other.9 This means in the practical behavior context of a Great Plains farmer, that he first braces himself against the eventuality of a heavy risk loss, and then maximizes his income; and that he is aware of the uncertainty, and that he acts rationally to keep his farm and family going.10 The “gambling” of Plains farmers with prices and weather stems much more often from a lack of awareness of uncertainties, or an under-estimation of the size of the possible risk loss, than from a deliberate willingness to forfeit farm and home for the possible gain of a bumper crop salable at bonanza prices.
Rationality for a farm business in a thoroughly market-oriented economy may differ from rationality in the situation in which the Indian peasants find themselves.
It is the principal purpose of this section to demonstrate that the demand of farmers for more labor than an outside observer would think they require is a rational response to the peculiar circumstances of the harvest, and is largely independent of the effect that the supply of labor may have upon its price.
Top sentences (in general) of the cluster’s centroid
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It is this discrepancy between individual and market valuations or “value in use and value in exchange” which prohibits taking the position that one dollar’s worth of agricultural land, labor, or equipment is as useful to the farmer as any other dollar’s worth, that market prices eliminate the necessity of careful selection of the grades of the factors of production, and which makes it neces- sary for each farmer to use great care in the choice of the productive ’agents with which he associates himself.
I suspect that, somewhere in the background of conscious- ness of every student in economic research for agriculture, the thought that is here so imperfectly expressed has lodged, and has formed a background for the research effort.
Answers to the tough problems in land economics, the economics of development, production and marketing controls have a tendency to turn on value judgments involving something other than the economists pet efficiency norm.
The writer does not wish to belittle the value of abstract economic thinking but he does wish to hazard the suggestion that the majority of our farmers in this country look upon farming as a way of living rather than as several million “firms.”
H. C. M. Case , Stanley W. Warren, G. W. Forster , D. Curtis Mumford, R. S. Kifer
0.824
In discussing his paper, I consider it necessary to defend the philosophy of Northrop, the views expressed by the subcommittee of the Social Science Research Council Committee on Agricultural Economics, hereafter called the subcommittee, and economics.
When clear thinking regarding the problems of occupational distribution of wealth or, in other words, when-the forces which determine the farmers’ share in the national income, are given a central position in our farm economics, then efficient farming, efficient marketing, and the means of acquiring the ownership of land, will fall into their proper places as important phases of our subject, but not as the determinants of the economic and social status of the farmer.
The question whether a farmer has carried his cultivation of a particular piece of land as far as he profitably can, and whether he should try to force more from it or to take in another piece of land, is of the same kind as the question whether he should buy a new plough or try to get a little more work out of his present stock of ploughs….’ But from the point of view of society there is this difference between the payments made for the use of Ricardian ” land” and agents in fixed supply in general, and payments for the use of factors in flexible supply, that we must assume that, if prices were different, the supplies of the flexible factors would be different; but we need not make any such assumptions about the supply of the fixed factors.
The implications of the underlying economic logic, the hypothesis derived from it, and the supporting evidence for my treatment are that the process of modernizing this type of agriculture requires basic institutional, including policy, changes.
The general position taken more or less explicitly by the writers is that the rate of return in other fields is “determined” by the rate on capital used to pay wages in agriculture at the land margin.38 But in the first place, any view of the determination of a price in one section of a market by the price in another section is indefensible, as the causal relation in such a case is necessarily mutual.39 But secondly, and more important, such reasoning is worthless without an explanation of the meaning of a quantity of capital “in” an instrument which is not a consumable product but has “indirect utility”.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Frank H. Knight
0.811
Unfortunately, and indeed unaccountably, the Comimission do not agree to the first of these propositions; they do not on the other hand contest it; they are content to ignore a familiar and fundamental economic fact which had been carefully explained to them.3 The recommendation that agricultural land should be rated at one-half is difficult to justify, because, land being permnanent, the principle of hereditary burdens applies with full force.
The argument that price changes have an important function in a system of competitive private enterprise should not be taken to mean that all “free” price changes are to the good as far as the allocation of agricultural resources is concerned.
VI Since, depending on the premises that one uses, abstract reasoning leads to either the belief or disbelief in prices as a significant tool for inducing a proper allocation of resources within American agriculture, the foregoing discussion, which leads to a disbelief, indicates that inquiry is needed along two lines.
Whether the “values” represented by the allocative efficacy of prices that might be thus gained so offset other values now inherent in farms, characterized by the unity of functions, as to warrant the doing away with them is beside the present argument.
The issue does not resolve to the logic of the “pure” theory of resource allocation but to its applicability in American agriculture, to whether its postulates are attuned to actuality.
Underlying and basic to a sound consideration of these factors are the needs of the country for the products of the farms, but with full realization that in a dynamic economy adjustments in land use, land tenure, and size of operating units to the needs for food and fiber are not subject to precise social engineering control.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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Year
Journal
Authors
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It is this discrepancy between individual and market valuations or “value in use and value in exchange” which prohibits taking the position that one dollar’s worth of agricultural land, labor, or equipment is as useful to the farmer as any other dollar’s worth, that market prices eliminate the necessity of careful selection of the grades of the factors of production, and which makes it neces- sary for each farmer to use great care in the choice of the productive ’agents with which he associates himself.
Unfortunately, and indeed unaccountably, the Comimission do not agree to the first of these propositions; they do not on the other hand contest it; they are content to ignore a familiar and fundamental economic fact which had been carefully explained to them.3 The recommendation that agricultural land should be rated at one-half is difficult to justify, because, land being permnanent, the principle of hereditary burdens applies with full force.
The same argument is presented in replying to the suggestion that the farmer considers in just the same way whether he shall try to get more work out of his stock of ploughs or out of his land, and that, therefore, the income does not enter into price any more than does rent.
Both must be taken into account in a way which is consistent with the facts of industry.11 And the implication that there is a mar- ” In Mr. Hobson’s argument, as I understand it, the rent of grazing land enters into the price of wheat; but, as I tried to show, the price of wheat was really determined by the demand and supply of wheat, thereby fixing the grade of land-power which could be used with profit.
But when one represents, as does Rae, that with expanding investment there may be an increased resistance of nature respecting materials or the uses of “land” all along the line, then this cause of greater costs of production produces its effect on profits, not through wages or any other medium, but directly; and it cannot be offset in any degree by a general improvement in the market values of products.
It seems to be generally admitted thatfalker’s masterly portrait of the industrial captain was not improved by his representation of profits as rent.2 Having now considered the party that takes factors of production in return for products, or the proceeds thereof, let us look at the other side of the counter,-the triangular counter across which we may imagine the three factors of land and labor and capital to be exchanged, if we place in the interior of the triangle an entrepreneur of Walker’s type, our second species, dealing with three parties in quick succession, and in some sense simultaneously.3 At the height of abstraction from which it is here attempted to survey the economic world, what appears the most salient feature in the transactions respecting land is the circumstance that the quantity of ground, or at least space,4 is limited, not capable of being increased ’ As argued by the present writer in his Address to the British Association for the Advancement of Science, 1889, written before the publication of Professor Marshall’s weightier judgment in the Principles of Economics.
” It thus appears that Rooke’s own account of his ” anticipation” discloses nothing more than an aniemic restatement of Adam Smith’s doctrine of rent devoid of the differential principle-and this as an answer to the unmistakable challenge of his correspondent: “You request to be informed-when I first published an opinion that ‘the average price of corn is regulated by the cost of producing it on the worst class of soils which the demand brings under tillage?’”
Oversight of this fact is due to a failure to consider agriculture and manufactures from the same point of view, namely, the possible extent of investments upon a given area.?
If the rents of all competing crops mutually enter into each other’s prices, the door has been opened quite as effectually for the entrance of rent into price as if the relation had been made more direct.
I suspect that, somewhere in the background of conscious- ness of every student in economic research for agriculture, the thought that is here so imperfectly expressed has lodged, and has formed a background for the research effort.
When clear thinking regarding the problems of occupational distribution of wealth or, in other words, when-the forces which determine the farmers’ share in the national income, are given a central position in our farm economics, then efficient farming, efficient marketing, and the means of acquiring the ownership of land, will fall into their proper places as important phases of our subject, but not as the determinants of the economic and social status of the farmer.
The question whether a farmer has carried his cultivation of a particular piece of land as far as he profitably can, and whether he should try to force more from it or to take in another piece of land, is of the same kind as the question whether he should buy a new plough or try to get a little more work out of his present stock of ploughs….’ But from the point of view of society there is this difference between the payments made for the use of Ricardian ” land” and agents in fixed supply in general, and payments for the use of factors in flexible supply, that we must assume that, if prices were different, the supplies of the flexible factors would be different; but we need not make any such assumptions about the supply of the fixed factors.
The general position taken more or less explicitly by the writers is that the rate of return in other fields is “determined” by the rate on capital used to pay wages in agriculture at the land margin.38 But in the first place, any view of the determination of a price in one section of a market by the price in another section is indefensible, as the causal relation in such a case is necessarily mutual.39 But secondly, and more important, such reasoning is worthless without an explanation of the meaning of a quantity of capital “in” an instrument which is not a consumable product but has “indirect utility”.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Frank H. Knight
0.811
It may be granted also that in some branches of current economic activity-say, agricultural production under what amounts to a system of ” peasant proprietors “-it is conceivable that the individual in charge of the economic unit is actually in continuing doubt as to what part of his crop he intends to sell, and what part he intends to consume.
The writer has frequently heard the argument advanced that a prospective increase in the value of their land is necessary to keep farmers in their business-that without this increment they would not get the current rate of return.
If the fundamental facts as to the function of landownership, farm operation, and of farm labor are made the background of public consideration, and if the measuring rods of individual economic power, namely, power to produce and power to save, are used in assessing the functional value of individuals and classes, we can hope to avoid hurtful policies based on a superficial externalism.
If this general principle be recognized, whatever our theory of the ultimate solution of the problem may be, is it not incumbent upon all those concerned with the economics of agriculture to seek to establish what are essential elements of minimum standards of living for farm families with relation to regional conditions, and to secure gradually such a conviction among farmers of the justice and necessity of these standards that they will be incited to work out ways and means for their maintenance?
And so, when the farmer, neither operating nor leasing his farm, decides to sell it, he may, to be sure, arrive at a choice between spending and lending, and a choice that is actually one of having spending dollars now as against having spending dollars a year hence; or it may be that now, as equally a year hence, the issue is one between alternative lines of investment, with spending the third horse in the race.
Without arguing the manifest difficulties of prospective price determination, and the almost equal difficulties in the way of economic education of farmers, I suggest that perhaps here is a mark for the agricultural economist to shoot at.
The writer does not wish to belittle the value of abstract economic thinking but he does wish to hazard the suggestion that the majority of our farmers in this country look upon farming as a way of living rather than as several million “firms.”
H. C. M. Case , Stanley W. Warren, G. W. Forster , D. Curtis Mumford, R. S. Kifer
0.824
VI Since, depending on the premises that one uses, abstract reasoning leads to either the belief or disbelief in prices as a significant tool for inducing a proper allocation of resources within American agriculture, the foregoing discussion, which leads to a disbelief, indicates that inquiry is needed along two lines.
Whether the “values” represented by the allocative efficacy of prices that might be thus gained so offset other values now inherent in farms, characterized by the unity of functions, as to warrant the doing away with them is beside the present argument.
Underlying and basic to a sound consideration of these factors are the needs of the country for the products of the farms, but with full realization that in a dynamic economy adjustments in land use, land tenure, and size of operating units to the needs for food and fiber are not subject to precise social engineering control.
The conclusion is, that even if society is led by the same economic motives as the individual operator and makes use of identical systems of accounting it might arrive at land use recommendations, which the farm operator will not accept without compensation.
It may not be economical for some farmers to do certain things which many farmers elect to do, but we may have to interpret economic principles into terms of farm practices which fit the resources on a particular farm.
H. C. M. Case , Stanley W. Warren, G. W. Forster , D. Curtis Mumford, R. S. Kifer
0.792
There is, in the opinion of the writer, a distinct possibility that it is possible to devise and apply a system of administered prices which will do a better job, in terms of resource allocation, of getting grain and livestock products produced than the open market will do.
This contention is based upon the erroneous conception that the managerial capacity of a given farmer is a fixed unalterable quantity inherently predetermined by his mental make-up, and that he is at any given time utilizing this “management quantity” fully to the limits of his capacity.
Farm organizations are motivated by many valuations apart from the general maximization of goods and services, and the economist’s contribution to policy sometimes may be greatly modified.
Answers to the tough problems in land economics, the economics of development, production and marketing controls have a tendency to turn on value judgments involving something other than the economists pet efficiency norm.
The argument that price changes have an important function in a system of competitive private enterprise should not be taken to mean that all “free” price changes are to the good as far as the allocation of agricultural resources is concerned.
The issue does not resolve to the logic of the “pure” theory of resource allocation but to its applicability in American agriculture, to whether its postulates are attuned to actuality.
18-20. observe that farmers want freedom and progress as well as price stability, but we do not conclude that since those are value judgments too, economic science can say nothing about how those conflicting values can be reconciled.
In this connection a conclusion on the futility of such manipulations by Howell, an economist in the U. S. Department of Agriculture, who studied the problem exhaustively in the 30’s seems particularly pertinent: “.
To make explicit the basis for the apparent consensus that “something must be done for farmers” and to help men review in their minds and to make explicit the reasons they might think that Mr. Brannan’s proposal is or is not a good way of altering the rules calls for a priori analysis; and if a neoclassical price theory did not already exist, something much like it would be generated in the process.
If improvement in agricultural policy is to remain as one of the major goals of the profession we must continue to ask “whose valuations” when confronted with statements which form an obstacle to a more rational agricultural policy.
For if prices are fixed they no longer command the movement of resources within agriculture or between agriculture and industry in accordance with the dictates of consumer choice.23 Obvious though this may seem, further examination shows that some of the concern is ill-founded and more of it is subject to serious, if unconscious, exaggeration.
A farm organization economist must come to recognize that economic reasoning is only one of a number of factors that govern conclusions and choice of means.
In discussing his paper, I consider it necessary to defend the philosophy of Northrop, the views expressed by the subcommittee of the Social Science Research Council Committee on Agricultural Economics, hereafter called the subcommittee, and economics.
The implications of the underlying economic logic, the hypothesis derived from it, and the supporting evidence for my treatment are that the process of modernizing this type of agriculture requires basic institutional, including policy, changes.
On the other hand, “the purchasing power which is transferred from the large landholders to the peasants should often be considered as a badly needed investment in the human agent in agriculture.”
; the rent on that particular farm would be a greater proportion of the gross produce than before, but it by no means follows that it would be a greater proportion of the whole produce of the country; for instead of one capi- S SECOND THOUGHTS Principles proportion of the whole produce will be diminished, yet as it will rise in value, he, as well as the landlord and labourer, may, notwithstanding receive a greater value.
It shows how the farmer’s desire for price policy that gives him a fair return for what he produces runs into headon conflict with his desire for policies that place no constraints on his power to run his business as he pleases.
Agricultural economics becomes an ever more powerful “projector” of economic outcomes given the determinative premises of the economic man and the specification of an uncomplex criterion.
if, however, we take into consideration that differences in productivity of successive inputs of capital are of decisive significance in the issue, then a justifiable question arises: is it not possible that a situation may arise when the price of crops is determined not by the worst quality land, but by the least productive capital outlay, inasmuch, of course, as such investment is socially necessary?
The reflection of the price of land in the price relations of relevant products does not represent the mere requirement to “pay’ rent within the society; it should rather contribute to the improvement of price formation and, through prices, to the rationalization of production, utilization of production reserves and, consequently, to the growth of labor productivity.
If someone, after having carefully studied the body of knowledge the professional literature of agricultural economics contains about the problems of organization, management, control and decision-making, attempts to incorporate the manyfold concepts into a reasonable system, he is very likely to fail, though he will acknowledge that almost each of the different concepts hassomejustificationofitsown.lt is strange, moreover, that efforts will fail not only when one tries to reconcile, within some common system, the relevant concepts of socialist and capitalist agricultural economics, but also when one attempts to do so within the two systems separately.
The cluster gathers 203 sentences from our corpus. It represents 0.13% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are L. L. Price (21 sentences), Robert F. Hoxie (17 sentences), Walton H. Hamilton (10 sentences), A. B. Wolfe (8 sentences), T. N. Carver (8 sentences), W. J. Ashley (8 sentences), Edwin Cannan (6 sentences), F. Y. Edgeworth (6 sentences), Jacob H. Hollander (6 sentences), James A. Field (6 sentences).
The most recurring journals are Journal of Political Economy (85 sentences), The Economic Journal (60 sentences), The American Economic Review (29 sentences), The Quarterly Journal of Economics (29 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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If economic theory aims to deal with facts, it ought not to slur over this difference, so important in the lives of men, between activities which do and activities which do not involve the constant play of intelligence.
With this conclusion I might rest content, were it not that, on the one hand, I am by no means anxious to discourage the ordinary citizen from economic study, whether elementary or advanced, or to ask him to accept in unquestioning faith the pronouncements of abstruse authorities he cannot hope to comprehend, and will not dare to criticise; and, on the other hand, traces of this decisive inclination towards mathematics can, as I think, now be seen in books obviously prepared for the beginner, or for the ordinary instruction of the general student.
The question will therefore arise: How otherwise is a correct method to be acquired than by faithful study of the examples of economic inquiry which have come down to us?
High-school mathematics reason from sure premises to conclusions of immediate use, ordinarily, only to the specialist; in economics one must look sharply to his premises, as he will have to in life, since the theory is of direct interest to everybody, and upon the results of the reasoning hangs the destiny of society itself.
of to-day, present this exercise in logic; and, accordingly, business-men, without any loss of time, or disadvantage to their subsequent pursuits, may master this useful, if not necessary, portion of their education by gaining an acquaintance with economic theory.
And while it thus brings the student at once into contact with the facts of actual life, insisting upon the necessity of an intimate knowledge of the economic system as a basis for the formal study of economic principle, neither does it neglect the actual training of the student in reasoning power, nor does it introduce any artificial separation between the study of fact and causation.
Seriously speaking, however, an economics which is not a mere logical exercise, but is based on a first hand acquaintance with the practices of large business enterprises, would have taught Professor Taussig that what he criticises is a commonplace among intelligent manufacturers, and would thus have preserved him from what is, I regret to say, assuredly an exhibition of ” curious,” reasoning.
But I claim that, in matters such as these, a more widespread appreciation of economic theory, and the quickened intelligenice which that would produce, would save us much painiful experience, many costly experimenits, and an enormous mass of tedious ilnvesti- gation.
But even were the criticisms which we have brought to bear against the Historical and Classical methods laid aside, these questions would still recur: Why should we confine ourselves to seeking the records of the past, or, why conjure up artificial and unreal conditions in order to give training in RNAL OF POLITICAL ECONOMY economic reasoning power, when the world about us is crowded with actual life problems of economics from the simplest to the most complex ?
And while this method leaves the student essentially ignorant of actual economic facts and forces and untrained in the ability to probe out these facts and forces, and to estimate their actual causal values-ability absolutely essential to valid economic reasoniing-it is apt to engender in him, when it does not thoroughly impress him with the unreality of his discussions, a narrow positiveness, an assumption of knowledge and an inflexibility which go far to unfit him for acquiring real economic reasoning power, and cause the practical world to look with suspicion on all economic instruction.
I do not, of course, dispute the talent or impugn the zeal of those with whom I disagree; but I earnestly desire and urge that we should not now depart irrevocably from the wholesome fashion set by famous exponents of economic knowledge in the past, and that our statements should, where possible, be, like theirs, such that plain practical men of business and students of common calibre and ordinarv training could understand and follow them with ease.
We must free our minds from the fetters of long habit, take facts as they are demonstrated, and apply economic laws to conditions with intelligenice and courage, if we would perform wisely and well the most important task now before man.
Edward F. McSweeney, Samuel H. Barker , T. N. Carver
0.674
This granted, it is next to be insisted that in learning from past achievements we must consult for our guidance, not merely abstract works on economic theory and methods, but the examples of theory and method embodied in the more concrete economic investigations.
For critical examinations of theories and texts, old and new, of systems of economics established and proposed, our work may be a preparation; but our students must learn to stand and walk in the economic field before we demand that they avoid pitfalls and dangers that tax the expert abilities of the tried warriors of economic controversy.
A knowledge, indeed, of economic principles is a useful portion of the full equipment of the economic historian, precisely because it obviously implies some preliminary training in the difficult but necessary art of analysing the confused.
In the first place, we conceive it to be our duty to insure, in so far as this is possible, that our students carry away with them a body of economic doctrine which has a high degree of definiteness, which is held with a firm and certain grasp, and which is, in some measure at least, available.
We have found that the ordinary text, which attempts to garner, classify, and arrange into a logical system the economic wisdom of the ages fails to supply the student with a problem which makes his interest in the subject more than formal.
I make this statement seriously, for I believe that it is well worth while for a properly conducted seminary in political economy to assume that certain constitutional and statutory restrictions, which may appear to stand in the way of what from a strict economic point of view seems desirable, should be removed for purposes of specific discussions, and an economic analysis made of the effect on human welfare of certain lines of action which could be pursued if these obstacles were not in the way.
The advantages of this method are obviously in part pedagogical, but that is nothing against it, since one of our greatest social problems is that of making the principles of economics clear, and their applications concrete, to the average man.
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
Top sentences (in general) of the cluster’s centroid
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While it may be a misconception of the nature of economics as a science to suppose that we can teach it with anything like the same rigorous, inductive scientific method possible and desirable in the natural sciences, there is very evidently a growing and vitalizing belief that even one course in general “elementary” economics can be made far more significant than the bulk of economics teaching in undergraduate courses in the past has been, that the student’s interest may be more spontaneous and independently active, his knowledge-horizon of the actual world rapidly and valuably widened, his consciousness of the existence of great and difficult problems quickened, and that he can be brought to a realization that the solution of these problems properly depends upon a real understanding of economic forces and of those “theorizings” which the student even of today is so likely to regard as “up in the air” and therefore useless to any red-blooded citizen who proposes to apply himself to the actual world and not to metaphysics.
And while this method leaves the student essentially ignorant of actual economic facts and forces and untrained in the ability to probe out these facts and forces, and to estimate their actual causal values-ability absolutely essential to valid economic reasoniing-it is apt to engender in him, when it does not thoroughly impress him with the unreality of his discussions, a narrow positiveness, an assumption of knowledge and an inflexibility which go far to unfit him for acquiring real economic reasoning power, and cause the practical world to look with suspicion on all economic instruction.
For critical examinations of theories and texts, old and new, of systems of economics established and proposed, our work may be a preparation; but our students must learn to stand and walk in the economic field before we demand that they avoid pitfalls and dangers that tax the expert abilities of the tried warriors of economic controversy.
It seems to us important, not only that their ideas of economic truths should be definite, but also that those truths should be mastered; that the student’s hold on them should be so firm and certain that he will be prepared to reproduce, illustrate, and defend them with reasonable facility and effectiveness.
In the first place, we conceive it to be our duty to insure, in so far as this is possible, that our students carry away with them a body of economic doctrine which has a high degree of definiteness, which is held with a firm and certain grasp, and which is, in some measure at least, available.
And while it thus brings the student at once into contact with the facts of actual life, insisting upon the necessity of an intimate knowledge of the economic system as a basis for the formal study of economic principle, neither does it neglect the actual training of the student in reasoning power, nor does it introduce any artificial separation between the study of fact and causation.
This special aim is to restore to an important place in economic instruction certain elementary principles, almost truisms, on which the early i economists laid much stress, but which have latterly fallen into the background.
I am well aware too that students who have had such a course as I suggest will not be able to reason with infallible accuracy upon all the possible hypothetical cases of theory that can be put before them; but I submit once more that inasmuch as the average student cannot and will not specialize in economics, it is far better that he be somewhat deficient in the refinements of economic logic than that he should remain a practical stranger to the important economic conditions, forces, and processes within the nexus of which he will later have to functionate.
With this conclusion I might rest content, were it not that, on the one hand, I am by no means anxious to discourage the ordinary citizen from economic study, whether elementary or advanced, or to ask him to accept in unquestioning faith the pronouncements of abstruse authorities he cannot hope to comprehend, and will not dare to criticise; and, on the other hand, traces of this decisive inclination towards mathematics can, as I think, now be seen in books obviously prepared for the beginner, or for the ordinary instruction of the general student.
Having shown that our fundamental propositions are sanctioned by the nature of economic science, it will now be well, at the risk of some repetition, in order to facilitate the discussion of their practical merits, to interpret these propositions clearly and concisely in terms of general mnethod, and to contrast the method which they underlie and its implications with the methods of econiomic instruction which have been most in vogue.
I hope, therefore, that you will bear with me if I offer some reasons for thinking that the teaching and study of the theory of economics is not, as many people seem to suppose, a wholly unnecessary evil, but, on the contrary, a thing of very great practical utility.
Whether the theory is given first entirely, or to some extent mingled with the year’s study of concrete matters, is a question of method; but perhaps I may be permitted in passing to voice my conviction that one of the chief needs of economics at the present time is the construction of some dark and thrilling plot which shall lead the student’s interest into the forbidding field of theory without his too clearly understanding that he is there.
The advantages of this method are obviously in part pedagogical, but that is nothing against it, since one of our greatest social problems is that of making the principles of economics clear, and their applications concrete, to the average man.
It attempts to replace the formal knowledge of economic verbiage and the conventional sequences of its arguments with an intelligent understanding of its problems and principles in terms of the student’s own experience and thought.
These, or the like observations, which readers, for instalnce, of Professor Marshall’s well-known treatise will recall, do not fail in comprehensiveness; and yet they are furnished for the use of students who are acquainting themselves with a systematic scheme of economic principles where lavish and effective employment is made of mathematical ideas and finely-reasoned argument.
The cluster gathers 1458 sentences from our corpus. It represents 0.9% of all the sentences selected over the whole period.
The community exists from 1900 to 1959.
The most recurring authors are Frank H. Knight (42 sentences), Walton H. Hamilton (38 sentences), Frank A. Fetter (29 sentences), J. M. Clark (25 sentences), B. M. Anderson, Jr. (23 sentences), Paul Streeten (22 sentences), A. B. Wolfe (19 sentences), David Friday (19 sentences), Kenneth H. Parsons (18 sentences), Lewis H. Haney (18 sentences).
The most recurring journals are The Quarterly Journal of Economics (404 sentences), Journal of Political Economy (232 sentences), The American Economic Review (215 sentences), The Economic Journal (109 sentences), Journal of Farm Economics (86 sentences).
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Top terms 1950-1959
Token
TF-IDF
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
If man is a rational creature, one would like to know how much of his behavior is directed toward given ends, particularly toward those which can be quantified and their quantities expressed in money; and one also would like to know how much of rational activity goes beyond the means of realizing economic and other accepted values and is devoted to examining the values themselves, to appraising them, and to discussing whether they shall be changed.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
V. W. Bladen, Schumpeter
0.775
For that method is throughout the product of historical processes, the end-result of social decisions, some of them involving bald economic choices, others resting upon some of the most precious and intimate of human rationalizations; but all of them thoroughly infected with valuation.
To the degree that political or ethical norms rule the market, to the same degree does the possibility of applying economic criteria recede or vanish.8.
I am aware that much of the remainder of this lecture is not strictly an exposition of scientific economics, but deals largely with problems of political economy that involve value-judgments.
The values with which it deals are supposed to be those resulting from the efforts of buyers 1 In his paper, The Rationality of Economic Activity, Journal of Political Economy, vol.
The argument is conducted on the basis of economic quantities and not, as it should be, in relation to the production of economic values, and a study of their relations.
Knowledge of market values is one of the facts which he must have in planning a rational course of procedure, but the market does not give him a set of values which are adequate to warrant that procedure without further and independent valuations.
I do not think this view has ever been seriously maintained in practice; for at least economic consistency and SOME PROBLEMS O PRICE MAITENANCE 49 rationality are invariably held by economists to have some value,’ even if the word value be sedulously avoided in this connection.
While against the older ideas that it was possible to plan rationally without calculation in terms of value it could be justly argued that they were logically impossible, the newer proposals designed to determine values by some process other than competition based on private property raise a problem of a different sort.
Thus it is not descriptive, nor does it deal constructively with real problems.8 But it sets out the theoretical backbone of our knowledge of the causes which govern value, and thus prepares the way for the construction which is to begin in the following Book.
The recital is important only as tending to show that a theory of valuation which places the emphasis upon rationalistic appraisal overlooks the most important features of the process which it seeks to explain.
As a central concept of economic science value should, therefore, be superseded by price.6 This kind of criticism starts and terminates in the domain of pure logical concepts.
From the first part of our present deduction we arrive at a general conclusion which can be formulated in the following way: in order to understand economic events we have first to grow conscious of the socio-economic bases of our value judgments, and, secondly, to recognize the value bases in the explanations of particular events offered to us.
The second trivial, but equally fundamental, assertion of the theory consists in the observation that the economic value judgments of a person are not only influenced by the vector of commodities which he intends to acquire, but also by the circumstances under which his choice is made.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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Title
Year
Journal
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Centroid Similarity
The values with which it deals are supposed to be those resulting from the efforts of buyers 1 In his paper, The Rationality of Economic Activity, Journal of Political Economy, vol.
The recital is important only as tending to show that a theory of valuation which places the emphasis upon rationalistic appraisal overlooks the most important features of the process which it seeks to explain.
Before passing to a brief summary, allow me to observe that in my economy based upon free valuation and choice by individuals, it is essential that the individual be given a chance to choose intelligently.
L. H. Haney , W. F. Gephart , Paul T. Cherington, R. R. Bowker
0.704
But the peculiar nature of its problems, the derision with which it defies diagrammatic presentation, its sprawling actuality which overrides logical frontiers and erects artificial ones athwart its problems, the arrogance with which it emerges from an examination of the mechanics of value determination to pronounce judgment upon the economic order, give to it the characteristics which make it a living reality rather than a mechanistic product of heroic intellectual work.
It follows that we should no longer speak of economics, after the manner of von Wieser 2 as ” treating exhaustively of the entire sphere of value phenomena “; but as one of the group of value sciences, Principles of Political Economy, Bk.
If one wishes, on the basis of an argument of this kind, to assert the relativity of values, one must broaden the value concept to include these other kinds of values Economic values alone do not constitute a complete or self-contained system.
On this point the thought of the author can best be presented in his own words, bearing in mind that the necessity of some kind of a valuation, as above outlined, has already been recognized.
Edward W. Bemis , John E. Brindley, James E. Boyle , James E. Allison, W. F. Gephart , C. J. Buell , Ralph E. Heilman, Howard C Hopson , J. G. Ohsol
0.698
It can hardly be overemphasized that all fundamental economic concepts are valuation concepts, and that valuation in terms of money turns not upon the quantity of money, but upon the individual’s valuation of that quantity.
I tuirn now to the problem of valuation, and I would first premise that the difficulties of valuation should be looked at in a practical and reasonable way.
It prepares us to face that subtler problem of the dissimilar habits of thought drilled into men by the daily work of 74 See the various papers of Professor C. H. Cooley, referred to in the latest of his series, “The Progress of Pecuniary Valuation,” Quarterly Journal of Economics, November, 1915; and the discussion of “The Concept of Value” by Professors B. M. Anderson, Jr., and J. M. Clark in the Quarterly Journal of Economics, August, 1915, especially Professor Clark’s remarks on p. the counting-house and of the factory.75 By going in for a realistic treatment of business life, we may hope to arouse a keener interest and a wider cooperation in economic theory.
A last word may be said as to the relation of all this reasoning to the modern development of the theory of value, and more especially to the question how far value depends at bottom on utility, how far on sacrifice.
I am aware that much of the remainder of this lecture is not strictly an exposition of scientific economics, but deals largely with problems of political economy that involve value-judgments.
Knowledge of market values is one of the facts which he must have in planning a rational course of procedure, but the market does not give him a set of values which are adequate to warrant that procedure without further and independent valuations.
I do not think this view has ever been seriously maintained in practice; for at least economic consistency and SOME PROBLEMS O PRICE MAITENANCE 49 rationality are invariably held by economists to have some value,’ even if the word value be sedulously avoided in this connection.
Thus it is not descriptive, nor does it deal constructively with real problems.8 But it sets out the theoretical backbone of our knowledge of the causes which govern value, and thus prepares the way for the construction which is to begin in the following Book.
As a central concept of economic science value should, therefore, be superseded by price.6 This kind of criticism starts and terminates in the domain of pure logical concepts.
The problem of economic valuation grows out of the fact that a complete comprehension of the physical qualities of material objects is oftentimes not adequate to warrant overt conduct, but must be supplemented and reconstructed from the economic point of view before the individual is free to proceed with the rational ordering of his conduct.
It was the work of a man who had seen that the whole subject of values needed complete revisualization and restatement, and who having undertaken so to view it, had stated all the fundamental problems of economic theory with such thoroughness, with such originality, that all who became interested perceived at once that here was a leader of thought, destined to work great reconstructions in our scientific view of the industrial life of our time, and of economic theory and of social progress, in general.
Assuming that rational economic action must conform to the “rationale” of a system of private enterprise, and encouraged by the advance of subjective value theory during the formative period of the doctrine, the proponents of the theory proceed to explain the revenue-expenditure process as a phenomenon of economic value and price, determined by fundamentally the same “laws” that govern market price in private economy.
The clarification of these problems, and the resolving of the, at any rate superficial, contradiction in the procedure of textbooks which begin their exposition of the Theory of Value with the assumption that everyone acts “rationally” or “sensibly”, and then in a later chapter base their explanation of economic fluctuations on “mistakes”, “fluctuations of optimism and pessimism”, or the casino-like nature of the capital market, is a necessary preliminary to the task of coordinating the theory of output and employment, with the theory of price or value.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.700
“In my economic studies I long ago reached the conclusion that all the old value theory, so-called, with its endless terminological controversies and its fruitless scholasticism, is superfluous ballast of which economic theory must rid itself.”
This sensitivity to the implications of contemporary economic processes may yet prove to be the sole value that those, if there really are such, who endeavor to realize the common good through reason may salvage from the experiences of the last two decades.
If man is a rational creature, one would like to know how much of his behavior is directed toward given ends, particularly toward those which can be quantified and their quantities expressed in money; and one also would like to know how much of rational activity goes beyond the means of realizing economic and other accepted values and is devoted to examining the values themselves, to appraising them, and to discussing whether they shall be changed.
For that method is throughout the product of historical processes, the end-result of social decisions, some of them involving bald economic choices, others resting upon some of the most precious and intimate of human rationalizations; but all of them thoroughly infected with valuation.
While against the older ideas that it was possible to plan rationally without calculation in terms of value it could be justly argued that they were logically impossible, the newer proposals designed to determine values by some process other than competition based on private property raise a problem of a different sort.
From the first part of our present deduction we arrive at a general conclusion which can be formulated in the following way: in order to understand economic events we have first to grow conscious of the socio-economic bases of our value judgments, and, secondly, to recognize the value bases in the explanations of particular events offered to us.
They could leave the whole vast question of true values, the right ends of action, on one side, as a matter on which the individual had to judge for himself, and which therefore economic science had to take as given.
This statement presupposes that the parties concerned are well informed and “rational,” in the same sense as is implied in all “marginal revenue-marginal cost” propositions of value theory.
Reasonable value is pragmatic, not logical; it is action, not truth; justification, not justice.26 Commons’ economic generalizations-such as the principles of working rules, sovereignty, and futurity-which he erects on the basis of his elusive and indefinite concept of institutional value, are necessarily more descriptive than analytical.
So we conclude that the transformation of value which occurs in the dynamics of the productive process can be likened to the transformation which is effected in a mechanical process and like the latter is governed by a principle analogous to that of the conservation of energy, with this fundamental difference: that the conservation of energy in the mechanical process represents a natural law which teaches us how certain facts occur, while, on the contrary, the transformation of value which is effected in the productive process represent a rule of conduct, which tells us how the facts occur, if the conduct of the individual is affected by a criterion of rationality.
This subject would lead into, and is basic for, discussion of the relation between economic theory and action, which certainly demands critical judgments of value, not reducible to instrumental content, as a starting point.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
V. W. Bladen, Schumpeter
0.775
To the degree that political or ethical norms rule the market, to the same degree does the possibility of applying economic criteria recede or vanish.8.
The argument is conducted on the basis of economic quantities and not, as it should be, in relation to the production of economic values, and a study of their relations.
The second trivial, but equally fundamental, assertion of the theory consists in the observation that the economic value judgments of a person are not only influenced by the vector of commodities which he intends to acquire, but also by the circumstances under which his choice is made.
While acknowledging the practical problems involved in separating facts and values in analyzing a practical economic problem, they staunchly defend the desirability of such a separation and reemphasize the theoretical possibility of doing so.
For national economic policy, it is a reasonable hypothesis that often only in the vaguest and least helpful way do we as citizens or policy-makers know our values except by inference from our actual choices.
Once the use of equilibrium as a value judgment is condoned, the replacement of the mystical ” natural ” forces by ” progressive ” political forces appears indicated, and a variety of social goals is incorporated in the concept of equilibrium.
The economist does not entirely escape making a value judgment by this method since he must evaluate the preferences of individuals and resolve contradictions among them in seeking to interpet “the community’s” preference.
“6 It might be argued that the value judgments which enter into the decision to accept or reject a hypothesis are of a different kind than those which the positive economist wishes to”fetter out.”
Among the 200 closest sentences to the cluster’s centroid, 2.5% mention the terms ‘rational’ or ‘rationality’
Sentence
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Year
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Centroid Similarity
As the theory of value has been extended to cover more and more obscure cases in recent years, it is not unnatural that it has also been used as part of a rationale of the institutions of individual enterprise.
The problem of economic valuation grows out of the fact that a complete comprehension of the physical qualities of material objects is oftentimes not adequate to warrant overt conduct, but must be supplemented and reconstructed from the economic point of view before the individual is free to proceed with the rational ordering of his conduct.
I The fact that most studies in the theory of value and distribution have been cast in the competitive mold has given priority to this type of study as a starting point, and has even led Mises to maintain that rational economic calculation is impossible without objective values being set in a competitive market.’
Professor Leontief has described the character of the economic question very succinctly:3 “The procedure of the modern value theory comprises two clearly separable and fundamentally different types of analysis….”In the first stage of his analysis, the modern theorist simply reproduces the rational considerations of entrepreneurs engaged in the business of maximizing their profits, and describes the reactions of consumers seeking the best possible satisfactions of their wants.
For that method is throughout the product of historical processes, the end-result of social decisions, some of them involving bald economic choices, others resting upon some of the most precious and intimate of human rationalizations; but all of them thoroughly infected with valuation.
Top sentences (in general) of the cluster’s centroid
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Journal
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Centroid Similarity
The reference will be rather short and apparently superficial, since the purpose of these introductory remarks is not to reinterpret the development of economic thought but to indicate the basis upon which an adequate theory of value may be formulated.
If an impasse has been reached in value theory, it may not seem wholly unwarranted to venture the suggestion that this phase of economic study may be in about the same position today that mathematics was in the days of Pythagoras, that physics was in the days of Gilbert, or that chemistry was in the days of Bacon and Boyle.
ATIONS OF THE VALUE CONCEPT This point has a direct bearing on the fundamental assumptions of certain latter day economic theories, and so deserves examination in some detail.
This question of the logical and scientific status of values and value judgments has arisen repeatedly in every field of science and philosophy’ and it is not the purpose of this essay to penetrate this central problem of the philosophy of science, but, rather, to present a general prospectus of the useful impact of the restoration of a theory of value to a central position in social science, with particular reference to economic theory.
If one wishes, on the basis of an argument of this kind, to assert the relativity of values, one must broaden the value concept to include these other kinds of values Economic values alone do not constitute a complete or self-contained system.
The foregoing introductory remarks will have attained their objective if they help us to decide the question whether or not there is a need for a theory of value as an inherent and inseparable part of economic theory.
ATIONS OF THE VALUE CONCEPT Various objections to a view of valuation from which so many of the dominant facts of the actual market have been abstracted suggest themselves.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
Sentence
Title
Year
Journal
Authors
Centroid Similarity
ATIONS OF THE VALUE CONCEPT This point has a direct bearing on the fundamental assumptions of certain latter day economic theories, and so deserves examination in some detail.
If one wishes, on the basis of an argument of this kind, to assert the relativity of values, one must broaden the value concept to include these other kinds of values Economic values alone do not constitute a complete or self-contained system.
ATIONS OF THE VALUE CONCEPT Various objections to a view of valuation from which so many of the dominant facts of the actual market have been abstracted suggest themselves.
Unfortunately, however, much of this work confuses the categories of “value theory” and “economic theory,” which it is the purpose of this study to separate.
Its concern has been an elaboration, cumbersome and elusive to be sure, of a single definition; its task has been to state with the necessary detail the place which value theory holds in economics.
THE concept of value is the core of economic thinking, and modern economics is older than American independence, yet the builders of the science are still disputing what value is, or how it shall be conceived.
Only in recent years has value theory escaped a formal association with laissez faire and now even its most positive statements bear in such terms as “utility” and “productivity” and in the wording of principles implications about the worthwhileness of prevailing arrangements.
It can hardly be overemphasized that all fundamental economic concepts are valuation concepts, and that valuation in terms of money turns not upon the quantity of money, but upon the individual’s valuation of that quantity.
If an impasse has been reached in value theory, it may not seem wholly unwarranted to venture the suggestion that this phase of economic study may be in about the same position today that mathematics was in the days of Pythagoras, that physics was in the days of Gilbert, or that chemistry was in the days of Bacon and Boyle.
I should prefer to seek illumination from another point of view-from a branch of economics wlhich is more elementary, but, I think, in consequence better developed-the theory of value.
The controversies amongst economists as to the foundations of value-theory arise over the differences of view as to the nature of utility and the utility function and the way in which the utility function settles the division of C. into C, and C. Let us first see what measure of agreement on these points exists.
As a central concept of economic science value should, therefore, be superseded by price.6 This kind of criticism starts and terminates in the domain of pure logical concepts.
As the theory of value has been extended to cover more and more obscure cases in recent years, it is not unnatural that it has also been used as part of a rationale of the institutions of individual enterprise.
The reference will be rather short and apparently superficial, since the purpose of these introductory remarks is not to reinterpret the development of economic thought but to indicate the basis upon which an adequate theory of value may be formulated.
The foregoing introductory remarks will have attained their objective if they help us to decide the question whether or not there is a need for a theory of value as an inherent and inseparable part of economic theory.
The application of coefficients and similar devices is only deceiving us about the real nature of the discrepancies existing at present between received doctrine and economic reality.9 VIII We are now able to add the last link to our inquiry into the general character of a theory of value.
tion of a problem is the key methodological idea in the book; implicit in this conception are positions both regarding the functions of economic theory and the treatment of valuation.
It should finally be apparent that the arguments concerning the necessity for a theory of value adduced here with reference to economic theory have equal validity in the other departments of the formerly unified sciences.
It may be that none of us knows- any more than Marx knew-what we mean by Value: and that in itself perhaps renders the formulation of a satisfactory theory of Value a matter of some difficulty.
This question of the logical and scientific status of values and value judgments has arisen repeatedly in every field of science and philosophy’ and it is not the purpose of this essay to penetrate this central problem of the philosophy of science, but, rather, to present a general prospectus of the useful impact of the restoration of a theory of value to a central position in social science, with particular reference to economic theory.
In economics, which once claimed value as its special province of investigation, value has become adumbrated and uncritically identified with price in the circular reasoning of orthodox economic theory; more recently an improvement, by way of frankness, is being registered in the complete abandonment of the term itself in some texts, with some neo-classical economists, like Lionel Robbins, explicitly denying that economics has anything to do with value judgments-a position, by the way, which involves a sweeping value judgment sustaining a whole system of values embodied in the institutional status quo.
The second trivial, but equally fundamental, assertion of the theory consists in the observation that the economic value judgments of a person are not only influenced by the vector of commodities which he intends to acquire, but also by the circumstances under which his choice is made.
Valuations are necessarily involved already at the stage when we observe facts and carry on theoretical analysis, and not only at the stage when we draw political inferences from facts and valuations.”
The cluster gathers 777 sentences from our corpus. It represents 0.48% of all the sentences selected over the whole period.
The community exists from 1900 to 1939.
The most recurring authors are Frank H. Knight (61 sentences), Talcott Parsons (35 sentences), F. A. von Hayek (33 sentences), Frank A. Fetter (33 sentences), Charles A. Tuttle (14 sentences), F. A. v. Hayek (13 sentences), Oskar Lange (12 sentences), E. Böhm-Bawerk (11 sentences), Irving Fisher (11 sentences), A. P. Lerner (10 sentences).
The most recurring journals are The Quarterly Journal of Economics (192 sentences), Journal of Political Economy (150 sentences), The American Economic Review (140 sentences), Economica (83 sentences), The Economic Journal (81 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
capitalistic
0.0022270
capitalism
0.0015753
abstinence
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capitalist
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capital
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collectivist
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socialist_economy
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sombart
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marxian
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bourgeois
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capitalists
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social_control
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marx
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economic_evolution
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capitalist_system
0.0004483
clark
0.0004397
ownership
0.0004397
private_property
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professor_knight
0.0004121
Top TF-IDF terms describing the community for each time window
Top terms 1900-1919
Token
TF-IDF
professor_clark
0.0059901
abstinence
0.0043716
clark
0.0028768
capitalization
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consumable
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capital
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railway
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incident
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maladjustment
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productivity
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surplus
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consumers_surplus
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employments
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fund
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Top terms 1920-1939
Token
TF-IDF
capitalistic
0.0049157
capitalism
0.0025862
capitalist
0.0020843
collectivist
0.0015985
abstinence
0.0012739
socialist_economy
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capitalization
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modern_capitalism
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marxian
0.0011215
sombart
0.0010987
bourgeois
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capitalists
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capitalist_system
0.0010337
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Title
Year
Journal
Authors
Words Similarity
In the first place, both are agreed that modern capitalism, or “free enterprise” is characterized by a peculiarly high degree of rationality; it is in fact the result of a long “process of rationalization.”
If there is any connection between reasoning and conclusions, and if ” correct” economic theory has any superiority of any kind over that which is incorrect, there can be no greater ” service ” to economic thought than that of striking any blow tending to free it from the incubus of the generally accepted theory of capital in most of its aspects.
The interesting feature in the first-mentioned form of “failing rationalization” is its being connected with the new type of social measure that does not exist in the purer forms of capitalism.
They are also agreed that, in so far as rationality is a mark of “economic” conduct, the development of capitalism is characterized by an increasing importance of economic factors in social life.
That the State should be under the compulsion in any given situation to maintain a given rate of investment, irrespective of other considerations, as the only alternative to unemployment, on the one hand, or to acute labour-shortage, on the other hand, is clearly irrational.’
Next, the modern theory shows how the actions of these individuals determine independently of their rational will and, using the famous Marxian expression, “behind their consciousness,” the shape and position of the very same imaginary demand and cost curve.
And secondly it is a rational system, all activity being adjusted to the values expressed bythe capitalistic spirit in a relatively exact adaptation of means to ends.
“3 But why should mistakes, owing to the unpredictability of consumers’ tastes and the weather, give rise apparently to important difficulties in a planned economy, but cause no disturbance of calculations, and be” confinable within certain narrow limits,” in a capitalist economy-unless one is tacitly slipping in the usual ” equilibrium ” assumption of perfect, or nearly perfect, foresight in a capitalist economy ?
It would, of course, not be defensible to deny that the peculiar principles of the structure of the capitalistic system-competition, money, market, freedom of choice and action, etc.-are leading to special disturbances which might be avoided by attenuating their activity or by applying different principles.
It is after this end is achieved that a rational socialistic production is said to become possible, and it is at this point that a substantial departure is made by some of the leading Soviet economists from the generally accepted theory.
Business men who, in the face of a changing environment, proceed to apply capital to the production of any economic good, bear this risk of maladjustment; but evidently, if rational persons, they will not deliberately accept a Risk-in its usual sense of an unrelieved probability of loss-but they will restrict their applications until there appears a compensating probability of exceptional gain.
We have now shown an unbroken chain of causation extending from the primitive economic problem-the subjective valuation of immediately consumable goodsthrough rent to the capital value of relatively permanent goods, or productive agents.
But how, it was asked with profound disdain, can an elemental process of an anarchic economic system, developing irrespective of the human will, be compared with the conscious change of an economic structure which is based on a definite plan to construct 1 ” Our plans are scientific, because .
If the attempt to find a new equilibrium is really the common motive power behind the multitudinous variety of the dynamic reactions of actual economic life, 2 it is on the basis of this notion that we must hope to build a more adequate theoretical dynamics; and it is on the basis of this notion that any future policy of social control must be constructed.
So long as we confine ourselves to the effects of the decisions of the capitalist on his own income stream, it may seem arbitrary to treat any one of the different sets of consistent decisions regarding his future income streami as in any way more ” normal ” than any other.
Again, mention of the technical advantage of capital and the division of labor calls up many subtle discussions of the motives which induce and counteract saving, the ” preference for present over future goods “; and we remember some questions about the motives which the business man has for buying the present goods, launching them into round-about production, and agreeing to pay interest.
Business men who, in the face of a changing environment, proceed to apply capital to the production of any economic good, bear this risk of maladjustment; but evidently, if rational persons, they will not deliberately accept a Risk-in its usual sense of an unrelieved probability of loss-but they will restrict their applications until there appears a compensating probability of exceptional gain.
We have now shown an unbroken chain of causation extending from the primitive economic problem-the subjective valuation of immediately consumable goodsthrough rent to the capital value of relatively permanent goods, or productive agents.
Again, mention of the technical advantage of capital and the division of labor calls up many subtle discussions of the motives which induce and counteract saving, the ” preference for present over future goods “; and we remember some questions about the motives which the business man has for buying the present goods, launching them into round-about production, and agreeing to pay interest.
“3 In a succession of paragraphs he emphasises, quite in the spirit of the most approved modern treatises, but partly in opposition to most of the text-books of his day, the fact that wealth does not include free, internal, useless, or unappropriable goods.4 He follows Smith in making the distinction between productive and unproductive labour, but proceeds to explain it away, as in his acceptance of Scott’s contention that an author may be a productive labourer.5 H’e gives a definition of capital which is of interest in view of the recent theories of Fisher and Cannan, saying that” capital consists of accumulated wealth, which is or may be applied to assist in the work of production, whi6h is nearly equivalent to saying that it consists of all wealth whatever.
We may say that a person’s valuation of capital, along with the valuations of other persons in like situation, is less the direct result of a previously existing market rate of interest, than it is, by affecting his and their attitude towards the market, a determinant of the rate of interest.
Acceptance of the fact that neither labor nor capital need eventuate either in a material result or in a good result, but only in a price-bearing result, must greatly modify the capital concept and greatly extend the capital category.
Once more we pass in review the familiar doctrinal antithesis of value as ratio and value as substance; cost as pain and cost as opportunity foregone; margins as fixing prices and margins as fixed by price; capital as productive factor and capital as distributive category; interest determined by productivity and interest determined by a discounting process.
It would astonish a business man to have an economist strike out from his assets as non-capital his raw materials, as would Kleinwachter, his perishable goods, as would Hermann, his fuel, as would Walras, or, above all, his land, as would most of the classical economists.
2 “The statement of how the productivity of capital works into and together with the other two grounds of the higher valuation of present goods, I consider one of the most difficult points in the theory of interest, and, at the same time, the one which must decide the fate of that theory.”
The valuation of ” none-reproducible capital goods ” may also be dismissed by poiting out that they also go back to some human activity of preemption and development, and are not theoretically different from shorter-lived agents except in degree Land value probably represents an investment of quite as much human pain as any other equally considerable category of value in the wor ties represented by the abscissas of both curves are rates of supply and demand respectively, quantities which will be offered and taken in a unit of time at the prices indicated by the corresponding ordinates.
The idea of a surplus, which with Turgot was the fundamental characteristic of the capital concept, becomes with Adam Smith the distinguishing feature of I Rfletxions sur la Formation et la Distribution des Richesses, ?
In the first place, both are agreed that modern capitalism, or “free enterprise” is characterized by a peculiarly high degree of rationality; it is in fact the result of a long “process of rationalization.”
If there is any connection between reasoning and conclusions, and if ” correct” economic theory has any superiority of any kind over that which is incorrect, there can be no greater ” service ” to economic thought than that of striking any blow tending to free it from the incubus of the generally accepted theory of capital in most of its aspects.
The interesting feature in the first-mentioned form of “failing rationalization” is its being connected with the new type of social measure that does not exist in the purer forms of capitalism.
They are also agreed that, in so far as rationality is a mark of “economic” conduct, the development of capitalism is characterized by an increasing importance of economic factors in social life.
That the State should be under the compulsion in any given situation to maintain a given rate of investment, irrespective of other considerations, as the only alternative to unemployment, on the one hand, or to acute labour-shortage, on the other hand, is clearly irrational.’
Next, the modern theory shows how the actions of these individuals determine independently of their rational will and, using the famous Marxian expression, “behind their consciousness,” the shape and position of the very same imaginary demand and cost curve.
And secondly it is a rational system, all activity being adjusted to the values expressed bythe capitalistic spirit in a relatively exact adaptation of means to ends.
“3 But why should mistakes, owing to the unpredictability of consumers’ tastes and the weather, give rise apparently to important difficulties in a planned economy, but cause no disturbance of calculations, and be” confinable within certain narrow limits,” in a capitalist economy-unless one is tacitly slipping in the usual ” equilibrium ” assumption of perfect, or nearly perfect, foresight in a capitalist economy ?
It would, of course, not be defensible to deny that the peculiar principles of the structure of the capitalistic system-competition, money, market, freedom of choice and action, etc.-are leading to special disturbances which might be avoided by attenuating their activity or by applying different principles.
It is after this end is achieved that a rational socialistic production is said to become possible, and it is at this point that a substantial departure is made by some of the leading Soviet economists from the generally accepted theory.
Among the 100 closest sentences to the cluster’s centroid, 1% mention the terms ‘rational’ or ‘rationality’
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It is precisely for the purpose of ridding rational economics of classificatory definitions of capital and substituting an analytical one-to show that capital and income differ in kind, not in degree-that I have been striving in this and former articles.
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What needs to be emphasized for our present purpose is that if an individual is to increase his productive power by the use of capital he must, under primitive conditions where exchange does not exist, devote a portion of his time to the creation of capital goods-he cannot devote it exclusively to the creation of consumption goods.
“3 In a succession of paragraphs he emphasises, quite in the spirit of the most approved modern treatises, but partly in opposition to most of the text-books of his day, the fact that wealth does not include free, internal, useless, or unappropriable goods.4 He follows Smith in making the distinction between productive and unproductive labour, but proceeds to explain it away, as in his acceptance of Scott’s contention that an author may be a productive labourer.5 H’e gives a definition of capital which is of interest in view of the recent theories of Fisher and Cannan, saying that” capital consists of accumulated wealth, which is or may be applied to assist in the work of production, whi6h is nearly equivalent to saying that it consists of all wealth whatever.
Now the desirability or otherwise of this system of personal ownership of capital is an arguable subject; but it is misleading in the last degree to take one single but essential element of it and discuss that element as if it were capable of being maintained or abolished all by itself.
Edwin Cannan , B. P. Adarkar , B. K. Sandwell, J. M. Keynes , K. E. Boulding
0.829
If there is any connection between reasoning and conclusions, and if ” correct” economic theory has any superiority of any kind over that which is incorrect, there can be no greater ” service ” to economic thought than that of striking any blow tending to free it from the incubus of the generally accepted theory of capital in most of its aspects.
Perceiving clearly that the fundamental and essential characteristic of capital is found in the acquisitive purpose, the increment purpose, of its, holding, and observing that individuals often gain by lending to others or by employing their wealth in some socially nonproductive application -on which question of nonproductiveness he was notoriously much confused - it all the while remaining true that communities as isolated aggregates can gain only through productive, processes of some sort, he divided the assumption that competing employers have not a like increase of capital.
Lest the argument seem to imply too much, or its conclusions to extend too far, it may be permissible to repeat that no abandonment of the technological concept of capital is advocated or could be admitted to be desirable, but only that this technological concept be accepted as such, and that its distinctly social bearing and significance be recognized.
His theory might possibly be considered, at least from this standpoint, as accounting for interest on capital for a brief period immediately following the introduction of a new process of production or of a new invention, as exemplified by the first 8 years of our illustration; but even so, the persistent income to capital, so characteristic of our present industrial system, remains unexplained, for, deprived of the fundamental premise, the whole structure of the theory as well as the final conclusions must fall.12 12 “The disadvantage connected with the capitalist method of production is its sacrifice of time.
He recognizes the scientific importance of these conceptions, which have resulted from profound analyses of economic phenomena; but he characterizes the application of the term “capital” to them as arbitrary and absolutely without justification,-as the very thing which can but vitiate their scientific usefulness.
Acceptance of the fact that neither labor nor capital need eventuate either in a material result or in a good result, but only in a price-bearing result, must greatly modify the capital concept and greatly extend the capital category.
Yet capital, in the sense of surplus wealth as a possession, has enabled man to acquire such a knowledge of and command over his own powers and the forces of nature, such a prerequisite has it become to every industrial undertaking, that economists have been led to recognize it as a distinct factor in production, co-ordinate with man and nature.
So late an innovation, indeed, is this modern institution of “capitalism,”-the predominant ownership of industrial capital as we know it,-and yet so intimate a fact is it in our familiar scheme of life, that we have some difficulty in seeing it in perspective at all, and we find ourselves hesitating between denying its existence, on the one hand, and affirming it to be a fact of nature antecedent to all human institutions, on the other hand.
Capital is no longer the perfect capitalist factor of production it must have been a generation or two ago; no longer as perfectly mobile, or as divisible, or as responsive to the dictation of the rate of interest.
Of course, the existing stock of capital in society is not the same as the existing stock of consumers’ goods, as some loose statements of the older writers might indicate, and we cannot say that they were not misled by such careless forms of statement, but there was none the less a fundamental truth in their theory.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1900-1919
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What needs to be emphasized for our present purpose is that if an individual is to increase his productive power by the use of capital he must, under primitive conditions where exchange does not exist, devote a portion of his time to the creation of capital goods-he cannot devote it exclusively to the creation of consumption goods.
“3 In a succession of paragraphs he emphasises, quite in the spirit of the most approved modern treatises, but partly in opposition to most of the text-books of his day, the fact that wealth does not include free, internal, useless, or unappropriable goods.4 He follows Smith in making the distinction between productive and unproductive labour, but proceeds to explain it away, as in his acceptance of Scott’s contention that an author may be a productive labourer.5 H’e gives a definition of capital which is of interest in view of the recent theories of Fisher and Cannan, saying that” capital consists of accumulated wealth, which is or may be applied to assist in the work of production, whi6h is nearly equivalent to saying that it consists of all wealth whatever.
Perceiving clearly that the fundamental and essential characteristic of capital is found in the acquisitive purpose, the increment purpose, of its, holding, and observing that individuals often gain by lending to others or by employing their wealth in some socially nonproductive application -on which question of nonproductiveness he was notoriously much confused - it all the while remaining true that communities as isolated aggregates can gain only through productive, processes of some sort, he divided the assumption that competing employers have not a like increase of capital.
Lest the argument seem to imply too much, or its conclusions to extend too far, it may be permissible to repeat that no abandonment of the technological concept of capital is advocated or could be admitted to be desirable, but only that this technological concept be accepted as such, and that its distinctly social bearing and significance be recognized.
His theory might possibly be considered, at least from this standpoint, as accounting for interest on capital for a brief period immediately following the introduction of a new process of production or of a new invention, as exemplified by the first 8 years of our illustration; but even so, the persistent income to capital, so characteristic of our present industrial system, remains unexplained, for, deprived of the fundamental premise, the whole structure of the theory as well as the final conclusions must fall.12 12 “The disadvantage connected with the capitalist method of production is its sacrifice of time.
He recognizes the scientific importance of these conceptions, which have resulted from profound analyses of economic phenomena; but he characterizes the application of the term “capital” to them as arbitrary and absolutely without justification,-as the very thing which can but vitiate their scientific usefulness.
Acceptance of the fact that neither labor nor capital need eventuate either in a material result or in a good result, but only in a price-bearing result, must greatly modify the capital concept and greatly extend the capital category.
Yet capital, in the sense of surplus wealth as a possession, has enabled man to acquire such a knowledge of and command over his own powers and the forces of nature, such a prerequisite has it become to every industrial undertaking, that economists have been led to recognize it as a distinct factor in production, co-ordinate with man and nature.
So late an innovation, indeed, is this modern institution of “capitalism,”-the predominant ownership of industrial capital as we know it,-and yet so intimate a fact is it in our familiar scheme of life, that we have some difficulty in seeing it in perspective at all, and we find ourselves hesitating between denying its existence, on the one hand, and affirming it to be a fact of nature antecedent to all human institutions, on the other hand.
Now the desirability or otherwise of this system of personal ownership of capital is an arguable subject; but it is misleading in the last degree to take one single but essential element of it and discuss that element as if it were capable of being maintained or abolished all by itself.
Edwin Cannan , B. P. Adarkar , B. K. Sandwell, J. M. Keynes , K. E. Boulding
0.829
If there is any connection between reasoning and conclusions, and if ” correct” economic theory has any superiority of any kind over that which is incorrect, there can be no greater ” service ” to economic thought than that of striking any blow tending to free it from the incubus of the generally accepted theory of capital in most of its aspects.
Capital is no longer the perfect capitalist factor of production it must have been a generation or two ago; no longer as perfectly mobile, or as divisible, or as responsive to the dictation of the rate of interest.
Of course, the existing stock of capital in society is not the same as the existing stock of consumers’ goods, as some loose statements of the older writers might indicate, and we cannot say that they were not misled by such careless forms of statement, but there was none the less a fundamental truth in their theory.
CAPITAL IN EVERYDAY USAGE AND IN ECONOMIC SCIENCE By way of approach to the central problem it will be useful to take some note of the connections or settings in which capital and interest have come into men’s thought and discussion.
The argument which we have to examine falls into two parts, the former an assumption about the behaviour of capitalists, the latter an examination of the consequences of this behaviour, assuming the hypothesis to be correct, which must be worked out in the light of economic theory.
Now, as I have tried to show in considerable detail in another place,’ the notion of maintaining capital quantitatively intact, far from being either clear or indispensable, presupposes a behavior of the capitalist-entrepreneurs which under dynamic conditions will sometimes be impossible and rarely reasonable for them to adopt.
A very short time ago these remarks would have seemed to me to be trite and unnecessary; but the curious cult of the doctrine that consumption of capital prevails, or is about to prevail, and that we ought to be much distressed about it, now appears to make it desirable to insist on the difference between capital and the economic heritage.
From the time when commercialism first became the dominant force in western society we have been fascinated by what appeared to be the magical power of sums of money to set the wheels of industry in motion, and consequently in all our economic planning our chief solicitude had been for the accumulation of capital in the sense of funds.
Hence, capital is a universal, eternal natural phenomenon; which is true if we disregard the specific properties which turn an “instrument of production” and “stored up labor” into capital.,5 The conditions which turn an “instrument of production” into capital arise from the institutions of property and competitive exchange.
This second factor, it may be noted, was deleted by Menger from the second edition, lest it be construed as supporting Bdhm-Bawerk’s theory of interest.32 Finally a vague and unsatisfactory definition of capital is presented: ….
The cluster gathers 388 sentences from our corpus. It represents 0.24% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are H. J. Davenport (28 sentences), F. Y. Edgeworth (21 sentences), Frank A. Fetter (16 sentences), A. C. Pigou (13 sentences), T. N. Carver (11 sentences), Robert F. Hoxie (10 sentences), F. W. Taussig (9 sentences), Charles A. Conant (8 sentences), J. M. Clark (8 sentences), L. L. Price (8 sentences).
The most recurring journals are The Quarterly Journal of Economics (158 sentences), Journal of Political Economy (119 sentences), The Economic Journal (71 sentences), The American Economic Review (40 sentences).
Top TF-IDF terms describing the community
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0.0011963
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commodity
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gold
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equivalence
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Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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The extent of rational action by the individual, with reference to the actual effect of material goods upon his personal welfare may also be discounted on the same grounds.
Thus the coincidence of perfect competition with ideal justice is by no means evident to the impartial spectator: much less is it likely I The attribution of a portion of the product to a unit of productive factor is only significant when the unit can be treated as a final increment.
JOURNAL OF POLIPICAL ECONOMY sibility make a promise which might be nullified by a change in the relation of other commodities to those which he produced.
The terms on which nature yields increasing supplies of some raw material, for instance, can not legitimately be regarded as the reserve prices in which she expresses her own demand I But even here in the last analysis, and when we consider the enormous range of the principle of ” substitution ” and the pressures that determine the directions taken by inventive genius, I believe we shall be thrown back in all important cases upon modifications in the demands upon human energy and expressions of human vitality and their distribution amongst all the utilities and fruitions that appeal to them.
A second artificial result is that to ignore pecuniary concepts and to deal directly with imputed ideas of personal reference puts the man of today and the savage upon substantially the same footing so far as their mental attitude toward goods and labor is concerned.
The treatise takes its real beginning from a discussion of “production,” a subject seemingly impossible to reduce to terms I The sentences in the text above are intended rather to characterize than to condemn texts in economics.
It must, then, follow that the saving of funds, or the bidding for them, or the rates fixed for them, can never be explained by utilities or abstinences taken quantitatively, but only as somehow regarded as ratios, and that no price or value and no interest rate can ever express desire or marginal desire or marginal impatience or any other purely quantitative fact.
And in last analysis, truly, products are not to be explained by remunerations, but by the supply of agents; the supply of products, being deteimined by the supply of agents, determines in turn-on the cost side-the value of the product; and the value of the product in turn explains the remuneration of the agent.
4 In very much the same way as Professor Clark, Butt contends that “by a -parity of reasoning we can calculate the relation between the product, whether of human labour, or of the powers of capital, and the product of a natural agent.”
In case any commodity allows more than this, the supply will naturally Claim to the original Publication of certain new Principles inz Political Economy addressed inz a Letter to E. D. Davenport, Esq.
It is said that there has been ” left on one side, as far as might be, all considerations turning on the special qualities and incidents of the agents of production “; but there is promised a”more detailed analysis in the following three groups of chapters on demand and supply in relation to labour, to capital and business power, and to land, respectively.”
The forces which influence and determine both supply and demand for a good in any market, then, are to be found in the putative psychological attitude and proprietary condition of the individuals who are supposed to be the prospective sellers and purchasers in the market, of the good in question.7 ’ The failure to understand the partly psychological character of supply, together with a failure to recognize the importance of the fact that goods in the market are wanted largely for future delivery, has lain at the foundation of a great part of the value controversy of recent years, which has consequently presented the edifying spectacle of a contest in which neither compromise nor the victory of either party could result in establishing the truth.
Here I must interpolate the remark that by ” satisfaction ” or “utility” in this address I merely intend a conventional objective representation of the subjective fact of preference, behind which the economist qud economist cannot penetrate.
Only we must remember MODERN LOGICIAN$ AND ECONOMIC METHODS 497 that when we pass from the region of the science of pure quantity into some different region, the science of which is primarily concerned with other conceptions, we are dealing with abstractions which are useful stepping-stones, but can afford us no complete or even adequate pathway to reality.
Foregoing a detailed criticism here, let us observe that the technical productiveness is not co-ordinate with the other causes assigned, and that the words “present wants” and ” future wants” are used in the propositions in different senses.
It is surely more than merely a significant coincidence that the economics which lays almost exclusive emphasis on production as an increase in the sum total of the means of gratification should be also the economics whose formulae of demand or utility leave no room for changes in wants save as exceptions to be passively admitted, but not actively interpreted or investigated.
For, while the conception of final or marginal utility sheds an illuminati:ng light on the possibility that the gain of one party to an exchange will not involve a corresponding loss to the other, because the transaction will not be concluded- on the terms on which it is arranged, unless both parties secure an advantage which, under the existing circumstances, they could not else have obtained, it does not preclude the idea, on which Mill’s lengthy discussion was based, and the vulgar employment of military terms in commercial debates is founded, that a different distribution of the resulting benefit might have been caused by an alteration in the strength of the bargainers.
Just as Ricardo, or Mill, argued that an alteration in the price of agricultural produce would cause, or be caused by, a change in the margin of cultivation, so Jevons and the Austrians have contended that the final utility of an article or a service would affect, or be affected by, the price at which it is possible to command its possession or enjoyment.
It is the men who are hesitating whether they should or should not purchase, whether they should or should not dispose of their goods, or whether lastly they should or should not continue to render the services necessary to their production, whose action in contracting or enlarging supply on the one hand, and on the other in intensifying or relaxing demand, is held to fix the price of an article in a competitive market.
Among the 50 closest sentences to the cluster’s centroid, 2% mention the terms ‘rational’ or ‘rationality’
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9-, 9.5. of value to market influences become intelligible, or a rational and detailed account of the ultimate relations of demand and supply to each other, and both of them to market prices, become possible.
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There is, therefore, much to say for the view that, however fully the primal and causal nature of demand be recognized, it is yet true that, given man as he is, with his equipment of desires and tastes and habits and customs, modifications in price are most profitably studied from the point of view of variations in the supply term.
To be sure, there is here but a case of the general principle that no one will give more for a thing, whether article of consumption or factor of production, than the equivalent of its total utility to him, which total diminishes as the quantity of the commodity is reduced.
When we speak of the value of an article in the economic sense, we think not of its usefulness in general, but of the utility of a definite quantity ; and we think not of the total utility of this quantity taken by itself, but of its marginal utility as compared with that of other commodities.
The treatise takes its real beginning from a discussion of “production,” a subject seemingly impossible to reduce to terms I The sentences in the text above are intended rather to characterize than to condemn texts in economics.
This takes the form of a denial of the existence of a measurable utility prior to price determination and an insistence that theorists form their judgments of the relative utilities of commodities, not only after, but because of, a predetermined price relation between them.2 A necessary corollary of this criticism is an attack upon the com?
In a society in which production comes about only through the individual attempt at gain, there is therefore no way of explaining the supply of any product but through the total of its price costs-no way of explaining relative supplies but through relative price costs.
It is surely more than merely a significant coincidence that the economics which lays almost exclusive emphasis on production as an increase in the sum total of the means of gratification should be also the economics whose formulae of demand or utility leave no room for changes in wants save as exceptions to be passively admitted, but not actively interpreted or investigated.
The forces which influence and determine both supply and demand for a good in any market, then, are to be found in the putative psychological attitude and proprietary condition of the individuals who are supposed to be the prospective sellers and purchasers in the market, of the good in question.7 ’ The failure to understand the partly psychological character of supply, together with a failure to recognize the importance of the fact that goods in the market are wanted largely for future delivery, has lain at the foundation of a great part of the value controversy of recent years, which has consequently presented the edifying spectacle of a contest in which neither compromise nor the victory of either party could result in establishing the truth.
The terms on which nature yields increasing supplies of some raw material, for instance, can not legitimately be regarded as the reserve prices in which she expresses her own demand I But even here in the last analysis, and when we consider the enormous range of the principle of ” substitution ” and the pressures that determine the directions taken by inventive genius, I believe we shall be thrown back in all important cases upon modifications in the demands upon human energy and expressions of human vitality and their distribution amongst all the utilities and fruitions that appeal to them.
His argument that the significant fact, however, is utility rather than cost of production, opened up a whole field of controversy which need not be surveyed here.22 It may be noted, however, that Jevons’ position on this question is completely disassociated from his general theory of exchange, and the reasons he gives for his attitude are extraneous to the general run of his analysis.
I55 But the identification of marginal utility with market value, by no matter what analysis, calls for further attention; and for the purposes of the present question we leave entirely at one side the problem of the competing claims of demand and of supply to the determination of price; we ask ourselves merely whether it is true that “when we speak of demand we think of marginal utility,” just as “when we speak of supply we think of marginal cost.”
It is the men who are hesitating whether they should or should not purchase, whether they should or should not dispose of their goods, or whether lastly they should or should not continue to render the services necessary to their production, whose action in contracting or enlarging supply on the one hand, and on the other in intensifying or relaxing demand, is held to fix the price of an article in a competitive market.
This generalization does not, however, hold good of inventions that facilitate the production of commodities for which the elasticity of demand is less than unity; for an increase in the quantity of these commodities involves a decrease in the aggregate quantity of ” wheat value ” in existence, and so tends to lessen the quantity of ” wheat value ” that people need to keep in the form of titles to legal tender.
Here again we encounter the attempt to establish two co-ordinate principles, diagrammatically represented by two intersecting curves; for though the “cost of production” theory of value is generally repudiated, we are still foo often taught to look for the forces that determine the stream of supply Y1 7 61 4 FIG.fl, 3~~~~~~ 2 along two lines, the value of the product, regulated by the law of the market, and the cost of production.
This part of the argument can best be presented in connection with a criticism of the application to the interest problem of the principle of the equilibrium of supply and demand used in explaining the value of commodities in general.
The cluster gathers 258 sentences from our corpus. It represents 0.16% of all the sentences selected over the whole period.
The community exists from 1900 to 1919.
The most recurring authors are H. J. Davenport (13 sentences), Edwin R. A. Seligman (11 sentences), F. Y. Edgeworth (11 sentences), Jacob H. Hollander (10 sentences), John Cummings (10 sentences), Walton H. Hamilton (9 sentences), Thorstein Veblen (8 sentences), Wesley C. Mitchell (8 sentences), F. W. Taussig (7 sentences), Frederick B. Hawley (7 sentences).
The most recurring journals are Journal of Political Economy (98 sentences), The Quarterly Journal of Economics (93 sentences), The Economic Journal (40 sentences), The American Economic Review (27 sentences).
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laborer
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laborers
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employer
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employers
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wages
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clark’s
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premiums
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Top sentences with ‘rational’ or ‘rationality’ of the cluster
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This appeal to force requires some explanation, and the conclusion appears almlost incolntrovertible that the disregard of economic principles of justice arises from changed conditionls in certain great industries, which have brought it about that a larger portion of the gains in these industries are economically indeterminate; that is to say, thev are a sort of profits to which neither labor n-or capital employed in these industries can assert a just claim.
For nature does not have separate compartments for wages and for profits; for the influence of railway and of banking systems; for the effects of monopolistic combinations, of trade unions, and of international trade competition; for credit fluctuations, and for unemployment and poor relief.
It is well known that workers and men of affairs alike are wont to laugh at doctors of philosophy who, trained in the chamber to make mathematical and logical solutions of the problems of economic life, assume to teach them and their sons the complex motives and activities that govern the conduct of industry.
From the present standpoint, however, he demonstrates nothing more than the proposition that at any given time a certain quantity of labor may be used as an ultimate standard of value ?
It comes as the result of experience of several years in trying to bring economic theory to workmen; it is a by-product of an attempt to make them see in perspective the economic world which lives about them, which hedges in their activities, and which imposes serious limi?
’That this is strongly reminiscent of Cairnes is by no means to be taken as condemning it; nor is there any reason why, in view of Cairnes’s now more or less antiquated position in the history and trend of economic doctrine, any further recognition should have been made of indebtedness to him than is contained in our author’s bibliography, in which the following high praise of Cairnes is set down: “Abstract but remarkably able;” it remains, however, none the less open to question whether this same-in many cases even greater and more evident-degree of indebtedness with regard to the most recent of economic thought should likewise have been left with the same lack of specific recognition.5 But however this may be, it is surely true that pain is not the antithesis of entrepreneur remuneration, in any other sense than that the laborer sweating in the field is the antithesis of the employer resting in the shade; not employer pain, but emplover expense, is the antithesis of employer remuneration.
To ascribe this division of labor to “a certain propensity in human nature to truck, barter, and exchange one thing for another”, and to regard this propensity as either “one of those original principles in human nature of which no further account can be given”, or as “the necessary consequence of the faculties of reason and speech” is a logical lapse that has excited the astonishment of all subsequent commentators.
And, if economics is “the reasoned activity of a people tending toward the satisfaction of its needs,” shall the economist confidently assert that the wage-earner’s ideal is one worthy only of contemptuous rejection ?
In primitive societies this secondary principle has no application worthy of mention; among wage-earners it is unimportant, though occasionally operative; but with managers, from the apple-woman on the corner to the president of a railway system, it has a scope and effectiveness second only to the fundamental axioms of demand and supply.
The possibility of making such readjustments is primarily determined by the driving force among the people in question of those instincts which make for material welfare -above all the sense of workmanship and the parental bent - and the resisting force of institutional bonds. ”
If, however, it turns out that enterprise is really entitled to rank as the equal of the other productive forces,- land, labor, and capital,- its exact nature can hardly be a matter of indifference.
was devoted to a vigorous and effective criticism of the adequacy ” Of the Labour which a Commodity has cost, considered as a Measure of Exchangeable Value.”
One who wishes to discover a universal defence for labor saving will hardly be content with an argument which rests upon the effects of secondary influences of a transitory nature.
vincing plea for economic theory as the indispensable antecedent to the study of practical problems; in the second, in an account of ” the division of labor,” which, properly understood, is the basis of all organized indus?
That this undergrowth of utilitarianism may, like the parent tree, prove fruitful, has been argued elsewhere.2 Here it need only be repeated that, when the vidual workman as an economic atom, but rather to suppose comparatively few independent bodies, each formed by the solidification of many individual atoms.
With their further argument, very questionable in my judgment, that competition is, or tends to be, effectual in giving to each man or agent a share proportional to his productivity, I have at present nothing to do: I wish only to note the fatuity of their assumption.
The reader will note that my principal thesis rests, not on such extreme cases as this of the actuarial economic man, but on the static view of human nature embodied in marginal utility, the independent demand schedule, and current definitions of production.
9Kennaday in Yale Review, May, 1910. as long as we delude ourselves into thinking that we can under present economic conditions find a basis for wages in any theory of ultimate reasonableness.
Now since the use of pecuniary concepts has had so large a part in shaping the current economic regime, no theory can account for this regime in a fashion satisfactory to modern men so long as it slights the role of money.
Among the 50 closest sentences to the cluster’s centroid, 2% mention the terms ‘rational’ or ‘rationality’
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Authors
Centroid Similarity
If the laborer is a spendthrift and elects to expend his entire money wage at once, or if the approximate adjustment of wage to subsistence demands such immediate and complete expenditure,2 then, if we for 1 It is this fact alone that gives the word ” unemployment ” any semblance of rationality as an expression of an undesirable condition In like manner under any other point of view the phrase ” right to work ” would be utterly absurd 2 The buyer who is insistent, either because of necessity or because of spendthrift habits, thereby exerts an upward influence on prices that tends to exhaust his purchas- the moment disregard services and the existing accumulated savings fund, we must admit the approximate correctness of Professor Taussig’s argument.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
2 ” It is by assuming perfectly free competition among employers that we are able to say that the man on the intensive margin of an agricultural force of laborers will get, as pay, the value of his product.”
So far as anyone has shown there seems to be no objection to my distinction between, on the one hand, what a factor in industry conditions and can prevent by its withdrawal and demand as the price of its participation and, on the other hand, what it actually produces; or to my contention that what labor produces when using only no-rent land or no-rent machinery is no fair test of what it normally produces and slhould receive, and that present theories of rent, interest, and wages, while they do explain what happens, do not even by implication julstify what happens.
It comes as the result of experience of several years in trying to bring economic theory to workmen; it is a by-product of an attempt to make them see in perspective the economic world which lives about them, which hedges in their activities, and which imposes serious limi?
observe that, though for the sake of simplicity of exposition I have assumed, all along, that the wages of labor constitute an invariable quantity, I yet conceive that, in a society making a steady and healthy progress, they BOHM-BAWERE ON RAE 411 readily admit, on the basis of the theory that labor is the ” residual claimant ” in industrial society, that ultimately the benefit of invention is perhaps entirely taken up by wages, either in the form of higher wages for the same number of laborers or in the form of the same wages for a larger number of laborers.
On all counts, therefore, the modern economist must conclude that the enforcement, throughout each particular trade, of a Legal Minimum of Wages would, like the analogous enforcement of Common Rules as to hours and sanitation by the Factory Law, be calculated to have good, and not bad, economic results on the com?
It is suggested that in the present state of economic knowledge, with the present method of economic reasoning, all that can be said of actual wages is that the laborer at least produces what he gets.
Now it is obvious that the fact of the existence of a great body of impecunious laborers, who are willing to sell the future fruits of their labor for present goods, makes possible the wage system; and the wage system, in turn, makes possible the organization and direction of industrial forces by the most capable members of the community; arnd, finally, this power of direction makes possible the earning of interest by a vast mass of capital which could not otherwise exist and functionate.
Thus in the circumstances supposed the operative would tend to get approximately the utmost possible-apart from the question of the reaction of wages on efficiency-in an active society reposing economically on a basis of freedom of enterprise, for we may take it that in such a society the bidding of individuals against one another for labour would continue at least up to the known marginal worth of labour.
If this train of reasoning were correct, no “profit” would accrue to the employer from the exploitation of labor in a ” static” society, and Professor Clark would be right in his identification of “profit” as an abnormal temporary gain arising from an industrial improvement out of which the employer takes the first share. ”
The elements other than labor entitled to compensation may in the economic mind be subdivided, and the economist may attempt to differentiate between pure interest, compensation for risk, the reward of the entrepreneur, etc., but in the public mind and for practical purposes these elements are combined in capital.
“1 Hence follows the important conclusion that” wages must be paid out of the produce, or the price of the produce of their labour,” and that the real element of significance is ” the rate of profit and the productiveness of labour employed in the fabrication of those commodities in which the wages of labour are paid.”
But as the number of such instruments increases, in the hands of the same or different capitalists, other and inferior labourers nmust be employed to use them, and according to the principle which I have just laid down, the rate of profits must be determined by those cases in which the efficiency of capital is the least; that is, on the supposition I have just made, the profits of a single tool will be equal to the difference of the quantities of work which the feeblest labourer could execute with or without its use.”
Obviously, the increased productivity of labor, caeteris paribus, must influence its value- be it use- value or exchange-value -through the same causes and in the same direction as it influences the value of products made by labor; and just as obviously is a theory wanting which explains the formation of an interval between two quantities moved in the same direction, simply by supposing the movement of the one to be unrestrained, whereas that of the other, subject to the same cause of movement, is fixed by virtue of an arbitrary and wholly unsupported hypothesis.”
This exclusion of labor from all share in the ultimate profits in defiance of economic justice is no doubt a fundamental cause of the continued warfare between labor and capital, and a remedy would seem to lie in the direction of a return to the elementary principles of profit sharing, always having due regard to the fact that while capital may suffer a total loss labor at any rate is sure of its subsistence.
’That this is strongly reminiscent of Cairnes is by no means to be taken as condemning it; nor is there any reason why, in view of Cairnes’s now more or less antiquated position in the history and trend of economic doctrine, any further recognition should have been made of indebtedness to him than is contained in our author’s bibliography, in which the following high praise of Cairnes is set down: “Abstract but remarkably able;” it remains, however, none the less open to question whether this same-in many cases even greater and more evident-degree of indebtedness with regard to the most recent of economic thought should likewise have been left with the same lack of specific recognition.5 But however this may be, it is surely true that pain is not the antithesis of entrepreneur remuneration, in any other sense than that the laborer sweating in the field is the antithesis of the employer resting in the shade; not employer pain, but emplover expense, is the antithesis of employer remuneration.
From the present standpoint, however, he demonstrates nothing more than the proposition that at any given time a certain quantity of labor may be used as an ultimate standard of value ?
The cluster gathers 1373 sentences from our corpus. It represents 0.85% of all the sentences selected over the whole period.
The community exists from 1920 to 1949.
The most recurring authors are Frank H. Knight (71 sentences), Talcott Parsons (52 sentences), Alfred Schuetz (28 sentences), O. H. Taylor (27 sentences), F. A. v. Hayek (25 sentences), Paul T. Homan (20 sentences), Robert A. Brady (18 sentences), R. W. Souter (14 sentences), O. Lange (12 sentences), Kenneth H. Parsons (11 sentences).
The most recurring journals are The Quarterly Journal of Economics (274 sentences), Journal of Political Economy (205 sentences), The American Economic Review (197 sentences), Economica (192 sentences), The Economic Journal (107 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
rationalisation
0.0009043
rationalization
0.0004835
professor_hayek
0.0004758
men’s
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und
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rationalism
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humanity
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social_theory
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sciences
0.0002890
harmonious
0.0002864
social_sciences
0.0002792
human_nature
0.0002769
der
0.0002725
Top TF-IDF terms describing the community for each time window
Top terms 1920-1939
Token
TF-IDF
rationalisation
0.0030514
und
0.0012870
faculties
0.0008580
men’s
0.0007937
tho
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humanity
0.0007331
collectivism
0.0006893
social_control
0.0006655
social_change
0.0006514
die
0.0006062
rational_action
0.0005923
Top terms 1940-1949
Token
TF-IDF
social_world
0.0015699
professor_hayek
0.0015103
constitutive
0.0009812
collectivism
0.0009527
actor
0.0007846
rational_human
0.0007203
sociological
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lange’s
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rational_action
0.0005731
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hayek
0.0005391
social_phenomena
0.0005388
social_rationality
0.0005258
thinker
0.0005258
threatened
0.0005258
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
We have already noted that the concept of rationality has its native place not at the level of the every-day conception of the social world, but at the theoretical level of the scientific observation of it, and it is here that it finds its field of methodological application.
This concept recognizes the well-known fact - well-known, in particular, to economists - that the great mass of our everyday actions is not the result of rational reasoning on rationally performed observations, but simply of habit, impulse, sense of duty, imitation and so on, although many of them admit of satisfactory rationalization ex post either by the observer or the actor.
In order to answer this question we must analyse the various equivocal implications which are hidden in the term ” rationality” as it is applied to the level of every-day experience.
Similarly Dr. Mehmke in the Stuttgarter Neues Tagblatt argues “that we can only describe as rational what is in the interest not only of the individual, but also of the nation and of humanity.
Three general sets of circumstances have to be examined: the niotive of rationalisation, the circumstances under which rationalisation takes place, and the methods of rationalisation actually adopted.
The existence of society in which men can live a life of reason is dependent finally on the existence of a body of tradition, sentiments, beliefs, and personal loyalties that can be understood and shared but which are not rational, not at least in the sense that a machine is rational.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Robert E. Park
0.753
Preferences which are the result of ignorance or inertia are almost entirely irrational, though the momentary inconvenience and discomfort, which a change of custom inevitably involves, entails an element of rationality, of which the magnitude is the smaller the lower the rate at which the future should be discounted from the point of view of society.
And again: “The construction of a strictly rational course of action serves the sociologist in these cases, on account of its evident understandability and lack of ambiguity …. as an ideal type for the purpose of understanding real action which is influenced by irrationalities of all kinds, in terms of their ‘departure’ from what the action would be if it were purely rational.”
This short analysis shows that we cannot speak of an isolated rational act, if we mean by this an act resulting from deliberated choice, but only of a system of rational acts.’
It seems that we have to distinguish between the rationality of knowledge which is a prerequisite of the rational choice and the rationality of the choice itself.
On the other hand, even though certain regularities of behavior and their systematic association with market conditions may be observed, it may be that their rational necessity in terms of human motivation cannot be established, and that they will have to be accepted a priori.
The modern tendency to find mental satisfaction in measuring everything by a fixed rational standard, and the way it takes for granted that everything can be related to everything else, certainly receives from the apparently objective value of money, and the universal possibility of exchange which this involves, a strong psychological impulse to become a fixed habit of thought, whereas the purely logical process itself, when it only follows its own course, is not subject to these influences, and it then turns these accepted ideas into mere probabilities.’
V. Another group of writers concerns itself with the methodological and epistemological implications of rationalization, conceived as the final industrial and economic triumph of science, conscious effort, reason, and creative striving, in the will to overcome the ordinary temporal and spacial limitations on the range and quality of human endeavor imposed on the species by its original subjection to the raw caprice of nature. ”
The conditions now sought for under the name of rational control are between these limits of pre-assumption, and may therefore be regarded as a departure from whichever end of the scale is pre-assumed as ” natural,” in the direction of the other “C extreme.”
It was the view of the Physiocrats that this process would ensure the working out of all desirable adjustments in the economic system, when all individuals should have become rational or prudent men, living in a rational or just society with its “natural” scheme of 9.
Planning and rational action are, in fact, identical: and without a measure of rationality neither individuals nor societies of individuals could possibly persist….
Similarly, the rational deliberation of an actor as to wbether the results of a given proposed course of action will or will not promote certaiin specific interests, and the correspondi dcecision, do not become one bit more understandable by taking ‘psychological’ coinsiderations into account.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1920-1939
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Similarly Dr. Mehmke in the Stuttgarter Neues Tagblatt argues “that we can only describe as rational what is in the interest not only of the individual, but also of the nation and of humanity.
Three general sets of circumstances have to be examined: the niotive of rationalisation, the circumstances under which rationalisation takes place, and the methods of rationalisation actually adopted.
Preferences which are the result of ignorance or inertia are almost entirely irrational, though the momentary inconvenience and discomfort, which a change of custom inevitably involves, entails an element of rationality, of which the magnitude is the smaller the lower the rate at which the future should be discounted from the point of view of society.
And again: “The construction of a strictly rational course of action serves the sociologist in these cases, on account of its evident understandability and lack of ambiguity …. as an ideal type for the purpose of understanding real action which is influenced by irrationalities of all kinds, in terms of their ‘departure’ from what the action would be if it were purely rational.”
V. Another group of writers concerns itself with the methodological and epistemological implications of rationalization, conceived as the final industrial and economic triumph of science, conscious effort, reason, and creative striving, in the will to overcome the ordinary temporal and spacial limitations on the range and quality of human endeavor imposed on the species by its original subjection to the raw caprice of nature. ”
The conditions now sought for under the name of rational control are between these limits of pre-assumption, and may therefore be regarded as a departure from whichever end of the scale is pre-assumed as ” natural,” in the direction of the other “C extreme.”
It was the view of the Physiocrats that this process would ensure the working out of all desirable adjustments in the economic system, when all individuals should have become rational or prudent men, living in a rational or just society with its “natural” scheme of 9.
Planning and rational action are, in fact, identical: and without a measure of rationality neither individuals nor societies of individuals could possibly persist….
At this point it is vital for the reader to realize that tho the static formalist renders persistent lip-service to the conception of individual “rationality,” he is necessarily unable to provide this abstraction with even the purely formal characteristics requisite to entitle him to use the term ” rational ” at all.
Calvin B. Hoover , William Orton , Michael T. Florinsky
0.727
Top sentences 1940-1949
Sentence
Title
Year
Journal
Authors
Centroid Similarity
We have already noted that the concept of rationality has its native place not at the level of the every-day conception of the social world, but at the theoretical level of the scientific observation of it, and it is here that it finds its field of methodological application.
This concept recognizes the well-known fact - well-known, in particular, to economists - that the great mass of our everyday actions is not the result of rational reasoning on rationally performed observations, but simply of habit, impulse, sense of duty, imitation and so on, although many of them admit of satisfactory rationalization ex post either by the observer or the actor.
In order to answer this question we must analyse the various equivocal implications which are hidden in the term ” rationality” as it is applied to the level of every-day experience.
The existence of society in which men can live a life of reason is dependent finally on the existence of a body of tradition, sentiments, beliefs, and personal loyalties that can be understood and shared but which are not rational, not at least in the sense that a machine is rational.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Robert E. Park
0.753
This short analysis shows that we cannot speak of an isolated rational act, if we mean by this an act resulting from deliberated choice, but only of a system of rational acts.’
It seems that we have to distinguish between the rationality of knowledge which is a prerequisite of the rational choice and the rationality of the choice itself.
On the other hand, even though certain regularities of behavior and their systematic association with market conditions may be observed, it may be that their rational necessity in terms of human motivation cannot be established, and that they will have to be accepted a priori.
The modern tendency to find mental satisfaction in measuring everything by a fixed rational standard, and the way it takes for granted that everything can be related to everything else, certainly receives from the apparently objective value of money, and the universal possibility of exchange which this involves, a strong psychological impulse to become a fixed habit of thought, whereas the purely logical process itself, when it only follows its own course, is not subject to these influences, and it then turns these accepted ideas into mere probabilities.’
Similarly, the rational deliberation of an actor as to wbether the results of a given proposed course of action will or will not promote certaiin specific interests, and the correspondi dcecision, do not become one bit more understandable by taking ‘psychological’ coinsiderations into account.
What I wish to emphasise is only that the ideal of rationality is not and cannot be a peculiar feature of every-day thought, nor can it, therefore, be a methodological principle of the interpretation of human acts in daily life.
Among the 100 closest sentences to the cluster’s centroid, 19% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Instead of standing alone, it now fulfills the task of rationalizing in terms of assumed human motives the implications of certain observed “laws of behavior” which themselves do not directly concern human motivation.
We have already noted that the concept of rationality has its native place not at the level of the every-day conception of the social world, but at the theoretical level of the scientific observation of it, and it is here that it finds its field of methodological application.
The existence of society in which men can live a life of reason is dependent finally on the existence of a body of tradition, sentiments, beliefs, and personal loyalties that can be understood and shared but which are not rational, not at least in the sense that a machine is rational.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Robert E. Park
0.775
Three general sets of circumstances have to be examined: the niotive of rationalisation, the circumstances under which rationalisation takes place, and the methods of rationalisation actually adopted.
This concept recognizes the well-known fact - well-known, in particular, to economists - that the great mass of our everyday actions is not the result of rational reasoning on rationally performed observations, but simply of habit, impulse, sense of duty, imitation and so on, although many of them admit of satisfactory rationalization ex post either by the observer or the actor.
The modern tendency to find mental satisfaction in measuring everything by a fixed rational standard, and the way it takes for granted that everything can be related to everything else, certainly receives from the apparently objective value of money, and the universal possibility of exchange which this involves, a strong psychological impulse to become a fixed habit of thought, whereas the purely logical process itself, when it only follows its own course, is not subject to these influences, and it then turns these accepted ideas into mere probabilities.’
Anticipating what we shall have to prove later, we shall say that the level made accessible by the introduction of the term ” rational action ” as a chief principle of the method of social sciences is nothing else than the level of theoretical observation and interpretation of the social world.
The writer would merely suggest that his insights could be more fruitful if a more determined effort were made to fit them into a rational scheme, on the general lines which have here been indicated in outline, or perhaps of some different pattern.
Preferences which are the result of ignorance or inertia are almost entirely irrational, though the momentary inconvenience and discomfort, which a change of custom inevitably involves, entails an element of rationality, of which the magnitude is the smaller the lower the rate at which the future should be discounted from the point of view of society.
In order to bring out the concealed equivocations and connotations, and to isolate the question of rationality from all the other problems surrounding it, we must go further into the structure of the social world and make more extensive inquiries into the different attitudes toward the social world adopted, on the one hand, by the actor within this world, and, on the other hand, by the scientific observer of it.
In order to answer this question we must analyse the various equivocal implications which are hidden in the term ” rationality” as it is applied to the level of every-day experience.
These angles of view are all necessary and pragmatically fruitful; but no one of them, nor all of them taken separately and uncoordinated, give light sufficient to guide us if we aspire to a rational direction of social processes and relations.
Similarly Dr. Mehmke in the Stuttgarter Neues Tagblatt argues “that we can only describe as rational what is in the interest not only of the individual, but also of the nation and of humanity.
This short analysis shows that we cannot speak of an isolated rational act, if we mean by this an act resulting from deliberated choice, but only of a system of rational acts.’
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In what follows an attempt will be made to evaluate those arguments which occupy an important place in recent and contemporary literature of the subject.
Instead of standing alone, it now fulfills the task of rationalizing in terms of assumed human motives the implications of certain observed “laws of behavior” which themselves do not directly concern human motivation.
We have already noted that the concept of rationality has its native place not at the level of the every-day conception of the social world, but at the theoretical level of the scientific observation of it, and it is here that it finds its field of methodological application.
The aim of the later sections of the present paper has been merely to develop a point of view from which intelligent judgment of the question is possible.
The book would deserve the closest attention, even if its specific arguments were found to be either unsound or of little permanent value for further research along positive lines, by virtue of the vision of its conception, the saneness with which it sets limits to the discussion, and the boldness with which it states its conclusions.
It is, however, aside from the purpose of this paper and is referred to merely to indicate the vital importance to the social sciences of clear and generally understood methods of reasoning.
Few of the authors have completely ignored the influence of phenomena of another order than of that in terms of which they proceed each to his distinctive interpretation of our dilemma.
We have simply sought dispassionately to measure the thesis of this book by its own internal evidence and to test the consistency of the author’s reasoning on his own assumptions.
The treatment here, while less original than in other portions of the book, is marked by broad knowledge and a sense of proportion; even tho certain statements will provoke dissent it is replete with sound criticisms and suggestions.
In what follows,’ I have done no more than indicate some of the limitations of our power to establish this correspondence, and traced some consequences which follow from this limitation; and have then tried to indicate, in a very tentative way, what seems to me a possible line of attack on the core-problem of this subject, the mode of formation of expectations.
The existence of society in which men can live a life of reason is dependent finally on the existence of a body of tradition, sentiments, beliefs, and personal loyalties that can be understood and shared but which are not rational, not at least in the sense that a machine is rational.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1920-1939
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In what follows an attempt will be made to evaluate those arguments which occupy an important place in recent and contemporary literature of the subject.
The aim of the later sections of the present paper has been merely to develop a point of view from which intelligent judgment of the question is possible.
The book would deserve the closest attention, even if its specific arguments were found to be either unsound or of little permanent value for further research along positive lines, by virtue of the vision of its conception, the saneness with which it sets limits to the discussion, and the boldness with which it states its conclusions.
It is, however, aside from the purpose of this paper and is referred to merely to indicate the vital importance to the social sciences of clear and generally understood methods of reasoning.
Few of the authors have completely ignored the influence of phenomena of another order than of that in terms of which they proceed each to his distinctive interpretation of our dilemma.
We have simply sought dispassionately to measure the thesis of this book by its own internal evidence and to test the consistency of the author’s reasoning on his own assumptions.
The treatment here, while less original than in other portions of the book, is marked by broad knowledge and a sense of proportion; even tho certain statements will provoke dissent it is replete with sound criticisms and suggestions.
Instead of standing alone, it now fulfills the task of rationalizing in terms of assumed human motives the implications of certain observed “laws of behavior” which themselves do not directly concern human motivation.
We have already noted that the concept of rationality has its native place not at the level of the every-day conception of the social world, but at the theoretical level of the scientific observation of it, and it is here that it finds its field of methodological application.
In what follows,’ I have done no more than indicate some of the limitations of our power to establish this correspondence, and traced some consequences which follow from this limitation; and have then tried to indicate, in a very tentative way, what seems to me a possible line of attack on the core-problem of this subject, the mode of formation of expectations.
The existence of society in which men can live a life of reason is dependent finally on the existence of a body of tradition, sentiments, beliefs, and personal loyalties that can be understood and shared but which are not rational, not at least in the sense that a machine is rational.
This concept recognizes the well-known fact - well-known, in particular, to economists - that the great mass of our everyday actions is not the result of rational reasoning on rationally performed observations, but simply of habit, impulse, sense of duty, imitation and so on, although many of them admit of satisfactory rationalization ex post either by the observer or the actor.
15 It is unfortunate that most of the disagreement expressed in this paper refers to mere questions of fact about which there should be no disagreement, and to inconsistencies in assumptions and reasoning.
The cluster gathers 7480 sentences from our corpus. It represents 4.62% of all the sentences selected over the whole period.
The community exists from 1920 to 1979.
The most recurring authors are Frank H. Knight (114 sentences), Paul T. Homan (103 sentences), Allan G. Gruchy (72 sentences), Fritz Machlup (62 sentences), Talcott Parsons (50 sentences), Lionel Robbins (42 sentences), Harry G. Johnson (41 sentences), R. W. Souter (41 sentences), George J. Stigler (40 sentences), O. H. Taylor (40 sentences).
The most recurring journals are The American Economic Review (1239 sentences), Journal of Economic Issues (631 sentences), The Quarterly Journal of Economics (583 sentences), Journal of Political Economy (579 sentences), The Economic Journal (447 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
institutional_economics
0.0006698
economic_science
0.0004755
sciences
0.0004469
mathematics
0.0003584
scientific_method
0.0003564
teaching
0.0003485
natural_sciences
0.0003359
positive_economics
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robbins
0.0003258
historians
0.0003167
conventional_economics
0.0003022
scientists
0.0003000
economic_history
0.0002833
social_sciences
0.0002831
methodology
0.0002823
institutionalists
0.0002704
institutionalism
0.0002647
science
0.0002630
physical_sciences
0.0002550
mathematical_economics
0.0002549
Top TF-IDF terms describing the community for each time window
Top terms 1920-1939
Token
TF-IDF
institutional_economics
0.0019084
economic_science
0.0017719
natural_science
0.0011080
sciences
0.0010981
robbins
0.0010602
professor_robbins
0.0010575
scientific_method
0.0010030
science
0.0009396
institutionalism
0.0008755
natural_sciences
0.0008755
teaching
0.0008564
scientific
0.0008093
subject_matter
0.0008043
art
0.0007068
ethics
0.0007037
Top terms 1940-1949
Token
TF-IDF
economic_science
0.0016693
teaching
0.0013511
natural_sciences
0.0013183
commons
0.0012942
economic_research
0.0009812
robbins
0.0009578
sciences
0.0009531
political_scientists
0.0008200
scientific_method
0.0008200
scientific
0.0007476
scientists
0.0007399
science
0.0007269
scarce_means
0.0007228
social_sciences
0.0006851
scientific_economic
0.0006821
Top terms 1950-1959
Token
TF-IDF
mathematics
0.0009605
taxonomic
0.0008457
hutchison
0.0006938
mathematical_economics
0.0006696
schumpeter
0.0005939
economic_understanding
0.0005920
economic_science
0.0005559
mathematical_analysis
0.0004788
deductive
0.0004637
mathematicians
0.0004545
operationally
0.0004545
economic_phenomena
0.0004526
scientific
0.0004482
theoretical_economics
0.0004169
economic_analysis
0.0004075
Top terms 1960-1969
Token
TF-IDF
economic_history
0.0011571
historians
0.0008411
positive_economics
0.0008055
institutional_economics
0.0007176
economic_philosophy
0.0006255
mathematics
0.0005976
qualitative_economics
0.0005973
economic_historians
0.0005659
conventional_economics
0.0005522
teaching
0.0005367
economic_understanding
0.0004546
ayres
0.0004244
machlup
0.0004097
practical_economic
0.0004072
myrdal
0.0003968
Top terms 1970-1979
Token
TF-IDF
positive_economics
0.0009657
institutional_economics
0.0008306
conventional_economics
0.0008036
economic_science
0.0006495
neoclassical
0.0005599
paradigm
0.0005477
historians
0.0005271
institutionalists
0.0005145
epistemological
0.0005040
myrdal
0.0005015
positivist
0.0004937
physics
0.0004935
ayres
0.0004768
neoclassical_economics
0.0004739
empiricism
0.0004725
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Year
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Words Similarity
When it comes to economic doctrines, the individual is often not very rational.
It is characteristic that Marshall insists on the irrationality of many of our actual motives, and this is a fact which psychologists are apt to underline when commenting on the severely logical nature of economic reasoning.2 But for purposes of method, there is complete common sense in the classical assumptions, so long as one remembers ” all the faults ” of the economic measure.3 *Pigou follows out Marshall’s technique. ”
The actions of economizing individuals, however important to the economic scientist, are in the concrete the actions of men whose motivation is not exhausted by economic factors and whose rational actions as human beings may seem irrational on exclusively economic grounds.
A complete “objective rationality” in economic conduct requires a complete economic science, which can tell one with “certainty” exactly what the effects of one decision or the other will be, and even th a sceptic can argue that it is not necessarily “rational” to act even in accordance with the most confirmed and certain of scientific prognoses.
Advocated and adopted policies often appear incongruous to economists because they sometimes actually are, but also due to their conception within a broader “rationality.”
Sometimes economists come close to rationalizing all market results and private institutions by the argument that they would not occur and survive if they were not otpimally satisfying individuals’ preferences.
It uses the knowledge of the nature of man’s intellect and will for the rational explanation of economic facts, but does not construct those facts themselves out of one-sided assumptions respecting the nature of man.
To some economists at least, it has held open the possibility and hope that important questions that had been troublesome for classical economics could now be addressed without sacrifice of the central assumption of perfect rationality, and hence also with a maximum of a priori inference and a minimum of tiresome grubbing with empirical data.
The Neoclassical Revival Peering forward from the late 1950’s, it would not have been unreasonable to predict that theories of bounded rationality would soon find a large place in the mainstream of economic thought.
It is likely that if economic writing placed more emphasis on the limitations of the scientific viewpoint there might be more and not less sane recognition of the place which ways and means and rational calculation must have in the ordering of human affairs, less tendency for esthetically or morally or religiously minded persons to run away from the pattern of the economic man toward the other extreme of dreaming or petulant futility.
If, as seems probable, the future is likely to bring with it a diminution in the emphasis laid upon purely economic considerations and upon methods derived from the natural sciences, then it would be unwise for a society so full of energy and enterprise as this one to hitch its future, in an exclusive sense, to the study of economic phenomena and of economic thought, or to confine its members to the use of methods derived from the natural sciences.
550, 552. s In fact, there are some economists who hold the view that the tendency of using formal rationality as the exclusive perspective for the study of human behavior has unduly narrowed the scope of economic inquiry and that the assumption of rationality should be dropped from economics as a permissible assumption.
Since the implications of this proposition are important for all that follows, I should like to dwell briefly on one or two variants of what may be called ” pure economics.”
There are signs that some Soviet economists see this clearly enough; thus I. Malyshev has argued for a recognition of the logical connection between rationality and profitability.’
Even if we accept Prof. Robbins’ definition of the subject-matter of our present economics as ” the study of the behaviour of men in their attempt to dispose scarce resources between alternative uses,” neither Prof. Robbins nor any other economist would deny that such behaviour is influenced by political ideas, laws and historical traditions.
As an attitude it records the belief that a more rational control of world economic life through the application of scientific method is possible and desirable.
At the same time, the function of economic theory in relation to such problems is none the less important and indispensable; since the practical conclusions of the most untheoretical expert are always reached implicitly or explicitly by some kind of reasoning from some economic principles: and if the principles or reasoning be unsound the conclusions can only be right by accident.
XI But while I certainly do not wish to minimise this part of the economist’s task, I still thinik that our present knowledge justifies us in saying that the field for rational State activity in the service of the ethical ideals held by the majority of men is not only different from, but is also very much narrower than is often thought.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1920-1939
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Title
Year
Journal
Authors
Centroid Similarity
A complete “objective rationality” in economic conduct requires a complete economic science, which can tell one with “certainty” exactly what the effects of one decision or the other will be, and even th a sceptic can argue that it is not necessarily “rational” to act even in accordance with the most confirmed and certain of scientific prognoses.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.764
It is likely that if economic writing placed more emphasis on the limitations of the scientific viewpoint there might be more and not less sane recognition of the place which ways and means and rational calculation must have in the ordering of human affairs, less tendency for esthetically or morally or religiously minded persons to run away from the pattern of the economic man toward the other extreme of dreaming or petulant futility.
Even if we accept Prof. Robbins’ definition of the subject-matter of our present economics as ” the study of the behaviour of men in their attempt to dispose scarce resources between alternative uses,” neither Prof. Robbins nor any other economist would deny that such behaviour is influenced by political ideas, laws and historical traditions.
As an attitude it records the belief that a more rational control of world economic life through the application of scientific method is possible and desirable.
XI But while I certainly do not wish to minimise this part of the economist’s task, I still thinik that our present knowledge justifies us in saying that the field for rational State activity in the service of the ethical ideals held by the majority of men is not only different from, but is also very much narrower than is often thought.
1 The distinction drawn here may help to solve the old difference between economists and sociologists about the rBle which ” ideal types ” play in the reasoning of economic theory.
Thus, “in other words, rationalization should be conceived as connoting one goal of industrial economy; Scientific Management as a means to whatever goal of industrial economy.
In the first place, all behaviour is far from being rational behaviour,2 and in the second, no statement about events in the real world can claim absolute validity.3 3 A less sweeping, and at first sight more plausible, scheme for formalising economics, without at the same time cutting off its connection with reality, is that developed by Professor Richard Strigl in his book, Die 6konomischen Kategorien und die Organisation der Wirtschaft.4 Professor Strigl’s basic device for freeing economics from the embarrassments of psychological and other kinds of empirical investigation is to be found in his distinction between the categories and the data of economic science.
The rational scrutiny of economic phenomena is an inquiry so repellant to many that there are always those who will seize upon the least dispute among economists as a sign that economic science as a whole is worthless, and that economists themselves cannot agree on the simplest propositions of their science.
One suspects that the advocacy of the evolutionary, or genetic, or institutional approach to economic theory as the sole defensible approach conceals a dogmatism and a naive faith as fundamental as the nineteenth-century system of natural liberty, and quite as pronounced as that entertained by any intelligent contemporary advocate of orthodox economic analysis.
But in their efforts to bring greater rationality into the conduct of social affairs, economists have to face the opposition of all those who benefit from irrationality; and such people will not miss any opportunity of quoting and magnifying our disagreements so as to persuade the world that what we have to say can safely be ignored in the forming of social policies.
If these observations be just, instead of appealing to political arithmetic as a check on the conclusions of political economy, it would often be more reasonable to have recourse to political economy as a check on the extravagancies of political arithmetic.3’ While political arithmetic thus straggled on its devious, purposeless course, the main stream of economic thought and writing was taking direction and volume with the extension of philosophical speculation into the domain of economic relations.
The actions of economizing individuals, however important to the economic scientist, are in the concrete the actions of men whose motivation is not exhausted by economic factors and whose rational actions as human beings may seem irrational on exclusively economic grounds.
If, as seems probable, the future is likely to bring with it a diminution in the emphasis laid upon purely economic considerations and upon methods derived from the natural sciences, then it would be unwise for a society so full of energy and enterprise as this one to hitch its future, in an exclusive sense, to the study of economic phenomena and of economic thought, or to confine its members to the use of methods derived from the natural sciences.
Instead, I shall attempt to state the argument for the logical function of economic theory within the general conception of inquiry hypothesized in this essay.
The temptation to reduce the fundamental concepts or ultimate content of economic theory to propositions of the same meaning-content as those of physical science is a natural one; but it is just that-a temptation which must be resisted, as a condition of arriving at any scientifically or practically relevant truth.
This needs to be stressed bbcause some economists believe that the postulate of rationality can be used as an a priori principle, not subject to empirical verification.
As I have tried to analyze and understand economic theory and scientific method in economics I have become impressed by both the need for, and the possibilities of, a restatement of our problems in the light of logical theory.
This is a phase of the larger problem of freeing economists from attachments to traditional notions that interfere with a scientific search for economic causation and of keeping publicists, political and business leaders-and also the common manabreast of the conclusions of the best critical thinking on economic matters.
Concrete and positive answers to questions in the field of economic science or policy depend in the first place on judgments of value and as to procedure on a broad, general education in the cultural sense, and on “insight” into human nature and social values, rather than on the findings of any possible positive science.
As indicated above, some of us may feel that the unit of analysis and the entity the behavior of which it is of interest to study is not the individual economizer in his conscious, problem-solving state of mind.3 I believe that much of 3With reference to this inclination on the part of some to regard a quantitative work that is not built upon the neo-classical theoretical model as being essentially without a theoretical foundation at all, there is a point of moderate interest to the modern history of economic doctrines.
The American Economic Review VOLUME XXXV SEPTEMBER, 1945 NUMBER FOUR THE USE OF KNOWLEDGE IN SOCIETY By F. A. HAYEK* I What is the problem we wish to solve when we try to construct a rational economic order?
What it is important to get the public, and the social functionaries who control action, as well as “scientists,” to understand, if economic theory is ever to play any useful role in the world, is that “of course it is unrealistic.”
It is characteristic that Marshall insists on the irrationality of many of our actual motives, and this is a fact which psychologists are apt to underline when commenting on the severely logical nature of economic reasoning.2 But for purposes of method, there is complete common sense in the classical assumptions, so long as one remembers ” all the faults ” of the economic measure.3 *Pigou follows out Marshall’s technique. ”
Advocated and adopted policies often appear incongruous to economists because they sometimes actually are, but also due to their conception within a broader “rationality.”
It uses the knowledge of the nature of man’s intellect and will for the rational explanation of economic facts, but does not construct those facts themselves out of one-sided assumptions respecting the nature of man.
Since the implications of this proposition are important for all that follows, I should like to dwell briefly on one or two variants of what may be called ” pure economics.”
There are signs that some Soviet economists see this clearly enough; thus I. Malyshev has argued for a recognition of the logical connection between rationality and profitability.’
First, following well-tried and undeniably useful habits of thought we tend, in economic argument, to assume that, even if our hypotheses are not precisely in accord with the facts, our results are still applicable in some degree.
One cannot understand the meaning of certain concepts of economic analysis without considering that thought in general performs a function beyond the mere scientific one of explanation and beyond the technological one of controlling reality.
But for the understanding of the economic system we need something more, something which does refer back, in the last resort, to the behavior of people and the motives of their conduct.
It teaches us that, contrary to the usual view, the true scientific handling of an economic system of many centres does not consist in taking into account jointly all the elements of the problem, but in disregarding their vast majority at each move, exactly in the way in which a system of profit-seeking individuals in fact operates in a market of resources and products.
Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and Theoretical Economics
MICHAEL POLANYI
0.704
The more general aim of the finely wrought piece of theoretical exposition is to demonstrate - on the basis of that particular example - what the author considers to be the nature and function of economic theory.
Sometimes economists come close to rationalizing all market results and private institutions by the argument that they would not occur and survive if they were not otpimally satisfying individuals’ preferences.
550, 552. s In fact, there are some economists who hold the view that the tendency of using formal rationality as the exclusive perspective for the study of human behavior has unduly narrowed the scope of economic inquiry and that the assumption of rationality should be dropped from economics as a permissible assumption.
At the same time, the function of economic theory in relation to such problems is none the less important and indispensable; since the practical conclusions of the most untheoretical expert are always reached implicitly or explicitly by some kind of reasoning from some economic principles: and if the principles or reasoning be unsound the conclusions can only be right by accident.
It might be supposed, even by economists who find the rationality assumption innocuous enough, that, if economics could have dispensed with this assumption, the epistemological foundations of the discipline would have been tightened and a considerable logical economy achieved.
III We turn, finally, to argue briefly that the failure of Becker’s attempt to emancipate economic theory from the rationality assumption ought in no sense to be viewed as a matter for regret.
The economic meaning of leaving other things unchanged when the degree of certainty is changed is not self-evident; although many formal constructions are possible the choice of the correct one is difficult.
Since economic theory is in preponderant measure dependent upon assumed motivations, to maintain an unchanged theory must involve assumption that the motivations and possibilities of action thereon are substantially similar under present conditions as those prevailing before its development.
It can be argued, therefore, that economic behavior is not quite analogous to physical behavior; to compare one with the other is to commit a serious logical error, for consciousness and the explication of meaning appear in the acts of humans that are not discernible in the movements of models.
We are not presented with ad hoc treatments of isolated problems, but rather with an admirable endeavour which combines intelligently practical and theoretical considerations, and illustrates the scope of economics as a science distinct from the other fields of “tooled” human knowledge.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Nicos E. Devletoglou
0.699
Top sentences 1970-1979
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Year
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Centroid Similarity
To some economists at least, it has held open the possibility and hope that important questions that had been troublesome for classical economics could now be addressed without sacrifice of the central assumption of perfect rationality, and hence also with a maximum of a priori inference and a minimum of tiresome grubbing with empirical data.
The Neoclassical Revival Peering forward from the late 1950’s, it would not have been unreasonable to predict that theories of bounded rationality would soon find a large place in the mainstream of economic thought.
The thesis that the validity of the behavioral foundations of economic theory could be established by observation might be relatively easy to demolish.20 The notion that there is an aspect of our behavior which corresponds to the behavioral assumptions of neoclassical economic thought and that is necessarily true cannot be so easily controverted.2’ One could ask, of course, whether this made for a disci- pline which is very meaningful or useful, but that is another question, and one to which Knight had an answer.
First, Friedman presents his methodology not only as an ideal, but also as the rationale of economic science which is implicit in work of the past.52 It is an intriguing thesis and worth more attention than can be devoted to it here.
To many economists the crucial question is not whether some specific assumption is more realistic than another, but whether a theory that employs it generates superior explanations or predictions.
Clarity on a notion such as economic rationality is something that radical economists need to achieve, and a good start has already been made by Maurice Godelier.
The role of economists in helping them to choose rationally is not above criticism: far too much of the early writing suffered from a preoccupation with a single issue to the exclusion of all others, or a failure to relate the technical details to the substantive economic issues that lie behind them.
Individualist economic theory appears to remain stuck in a particularly old-fashioned and unsatisfactory view that all human beings experience themselves as rational, calculating entities weighing certain ends against available means and experience their behavior as rational choice.
Economic theory should not be criticized for abstraction; rather, it should be questioned from time to time about the continuing appropriateness of its choice of premises.
Among the 250 closest sentences to the cluster’s centroid, 1.6% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The rational scrutiny of economic phenomena is an inquiry so repellant to many that there are always those who will seize upon the least dispute among economists as a sign that economic science as a whole is worthless, and that economists themselves cannot agree on the simplest propositions of their science.
It is likely that if economic writing placed more emphasis on the limitations of the scientific viewpoint there might be more and not less sane recognition of the place which ways and means and rational calculation must have in the ordering of human affairs, less tendency for esthetically or morally or religiously minded persons to run away from the pattern of the economic man toward the other extreme of dreaming or petulant futility.
First, Friedman presents his methodology not only as an ideal, but also as the rationale of economic science which is implicit in work of the past.52 It is an intriguing thesis and worth more attention than can be devoted to it here.
Not only does thought carry the birthmarks of its social origin, but also it acts back on its parent.55 But the methodological stance of economics conceals, behind the veil of objectivity, the manner and degree to which the prevailing body of economic theory influences social decisions as to what constitutes rational goals.56 Through their scientific prestige, pedagogy, and access to the media, economists exert a substantial impact on the thought processes of the polity, and since their theory is founded on a vision from the past, its influence is conservative and reactionary.
Top sentences (in general) of the cluster’s centroid
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Year
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Authors
Centroid Similarity
Pure economic theory is capable of demonstrating that a contention may be internally inconsistent or of revealing its hidden assumptions, and an economist armed only with such analytical equipment may play an important role in practical affairs; but this is not the whole of economics.
It is one of the causes of the unique position of economics that the existence of a definite object of its investigation can be realised only after a prolonged study and it is, therefore, not surprising that people who have never really studied economic theory will necessarily be doubtful of the legitimacy of its existence, as well as of the appropriateness of its method.
The temptation to reduce the fundamental concepts or ultimate content of economic theory to propositions of the same meaning-content as those of physical science is a natural one; but it is just that-a temptation which must be resisted, as a condition of arriving at any scientifically or practically relevant truth.
It must be apparent how fragile the framework of economic science is when it is realized that its alternative forms are equally dependent upon sets of ideas, or points of view, which are not themselves scientifically established in any intelligible meaning of the word.
This type of economic theorizing is extremely valuable, but the economic theorist should always be skeptical of his own conclusions; and failure to participate actively in the economic life about him may lead him to reach conclusions thought to be true to life though derived from premises only approximating actuality.
Anyway, my task here is neither to bury theory nor to praise it, but to try to sketch the relationships between certain points of view that have been proposed for the study of economics.
In this way by examining the propositions of economic science to determine to what subject-matter they actually refer, we can detect without difficulty a central body of problems, which undoubtedly belong to the subject-matter of economics and which cannot, therefore, be omitted from any correct definition of it.
Two thoughts contend for the uppermost place in the mind of an economist who turns aside from whatever special problems have been engaging his energies and steps away a little so as to get a general view of the present state of economic science.- In the first place there is an oppressive sense of the utter inadequacy of his own knowledge, and even of the knowledge which he could anywhere lay hold of.
Economic theory should not be criticized for abstraction; rather, it should be questioned from time to time about the continuing appropriateness of its choice of premises.
In our day, when economists approach their theorizing from so many angles, when they use such varied disciplines, and arrive at such discordant conclusions, it would seem almost as important to study the economists as to study their economics.
As indicated above, some of us may feel that the unit of analysis and the entity the behavior of which it is of interest to study is not the individual economizer in his conscious, problem-solving state of mind.3 I believe that much of 3With reference to this inclination on the part of some to regard a quantitative work that is not built upon the neo-classical theoretical model as being essentially without a theoretical foundation at all, there is a point of moderate interest to the modern history of economic doctrines.
Carried beyond a certain point-a point impossible, of course, to know with any precision-the study of economic theories ceases to be an important element in acquiring the technical equipment of an economist, and becomes, according to the method pursued, an exercise in dialectics or an inquiry int o an interesting chapter in the history of human thought.
The corollaries of economic theory do not depend upon facts of experience or of history, but ” are implicit in our definition of the subject-matter of Economic Science as a whole.”
It may be agreed that it is highly desirable that economists should ask themselves more frequently than they do what is the ultimate significance of their conclusions, not only in the universe of discourse of their own sometimes narrow postulates, but also in that wider universe of discourse common to all the social sciences.
Economics, to a great extent even in its actual organization, has failed to recognize that the ‘theorizing’ of conceiving economic theory very likely requires for best results a dif ferent approach-a different specializa tion-from that best for the ‘theorizing’ of formulating the theory logically and mathematically.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1920-1939
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It is one of the causes of the unique position of economics that the existence of a definite object of its investigation can be realised only after a prolonged study and it is, therefore, not surprising that people who have never really studied economic theory will necessarily be doubtful of the legitimacy of its existence, as well as of the appropriateness of its method.
It must be apparent how fragile the framework of economic science is when it is realized that its alternative forms are equally dependent upon sets of ideas, or points of view, which are not themselves scientifically established in any intelligible meaning of the word.
This type of economic theorizing is extremely valuable, but the economic theorist should always be skeptical of his own conclusions; and failure to participate actively in the economic life about him may lead him to reach conclusions thought to be true to life though derived from premises only approximating actuality.
In this way by examining the propositions of economic science to determine to what subject-matter they actually refer, we can detect without difficulty a central body of problems, which undoubtedly belong to the subject-matter of economics and which cannot, therefore, be omitted from any correct definition of it.
Two thoughts contend for the uppermost place in the mind of an economist who turns aside from whatever special problems have been engaging his energies and steps away a little so as to get a general view of the present state of economic science.- In the first place there is an oppressive sense of the utter inadequacy of his own knowledge, and even of the knowledge which he could anywhere lay hold of.
In our day, when economists approach their theorizing from so many angles, when they use such varied disciplines, and arrive at such discordant conclusions, it would seem almost as important to study the economists as to study their economics.
Carried beyond a certain point-a point impossible, of course, to know with any precision-the study of economic theories ceases to be an important element in acquiring the technical equipment of an economist, and becomes, according to the method pursued, an exercise in dialectics or an inquiry int o an interesting chapter in the history of human thought.
The corollaries of economic theory do not depend upon facts of experience or of history, but ” are implicit in our definition of the subject-matter of Economic Science as a whole.”
It may be agreed that it is highly desirable that economists should ask themselves more frequently than they do what is the ultimate significance of their conclusions, not only in the universe of discourse of their own sometimes narrow postulates, but also in that wider universe of discourse common to all the social sciences.
Historically, the scientific pretensions of economics have been mainly in the first field, or that of “pure” economics, and in this field the explanatory generalizations have been of a rather abstract character, achieved by a severe isolation of economic forces and a rigid use of logical deduction.
The temptation to reduce the fundamental concepts or ultimate content of economic theory to propositions of the same meaning-content as those of physical science is a natural one; but it is just that-a temptation which must be resisted, as a condition of arriving at any scientifically or practically relevant truth.
As indicated above, some of us may feel that the unit of analysis and the entity the behavior of which it is of interest to study is not the individual economizer in his conscious, problem-solving state of mind.3 I believe that much of 3With reference to this inclination on the part of some to regard a quantitative work that is not built upon the neo-classical theoretical model as being essentially without a theoretical foundation at all, there is a point of moderate interest to the modern history of economic doctrines.
If, as seems probable, the future is likely to bring with it a diminution in the emphasis laid upon purely economic considerations and upon methods derived from the natural sciences, then it would be unwise for a society so full of energy and enterprise as this one to hitch its future, in an exclusive sense, to the study of economic phenomena and of economic thought, or to confine its members to the use of methods derived from the natural sciences.
48 An economic theorist is justified on many occasions in oversimplifying facts to clarify in his own mind what he believes to be significant relationships.49 He is likewise justified in bringing the results of his speculative inquiries before his colleagues, whether to seek their critical appraisal before going further or to stimulate them by his work.
This is a phase of the larger problem of freeing economists from attachments to traditional notions that interfere with a scientific search for economic causation and of keeping publicists, political and business leaders-and also the common manabreast of the conclusions of the best critical thinking on economic matters.
Our task is to try to state what men who have some standing as economists mean in practice by economic behavior, insofar as they try to think and write in terms that define “economics” in a reasonable relation to other recognized disciplines.
Does recognition of the limitations of economics as a body of knowledge imply that, in this agitated world, we economists are to remain aloof, detached and indifferent, content to point out to bewildered men the inconsistenucies of their various actions, but never taking part in the grand debate of what those actions should be.
Following this conclusion, I shall outline some consequences which the use of our definition is expected to have upon the study of economic science, on the study of the history of economic thought, and on the application of economic science to practice.
Anyway, my task here is neither to bury theory nor to praise it, but to try to sketch the relationships between certain points of view that have been proposed for the study of economics.
But if it be once admitted that a theory which we take invariably, absolutely, and unquestioningly for granted, and which we regard ourselves as having explored to the uttermost so that all its implications, and the consequences of acting on it, are known, could have no power of stimulating thought and indeed would be incapable of being any longer the object of thought, it follows of necessity that all the theories which have any active role in an economist’s mental life and in his work must be ones that he can still cast doubt upon, can question and suspect, can feel to be incompletely worked out, and to hold unknown possibilities for good or evil when used as the basis of policy.
The process of development of economic theory has been, and must tend still more to be, a more complicated one than the movement back and forth between the real world and hypothesis or theory that characterizes the physical sciences.
Now, at the level of the treatise and the journal article, economic theory struts across the page clad only in matrices; now the fundamental tools of theory are separated from their applications; statics are kept distinct from dynamics of various kinds; and the thin line that separates description from praise, blame, or exhortation, has been emphasized by controversy; preaching is practically out.
The role of economic theory is as a tool of such understanding, not as a mechanical device into which data can be inserted and out of which emerge the sausages of prediction, unsullied by the subje’ctivity of the human mind.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
H. Scott Gordon
0.845
If this interpretation is adopted, the declarations as to the scientific character of economics amount to no more than a convenient classification into “pure” or “theoretical,” and “applied” or “practical,” economics.2 The difficulty that stands in the way of accepting this interpretation is the extreme importance which authors attach to the value-free character of economics, and the fervor with which they denounce in their methodological introductions any attempts to derive recommendations from the analysis of facts.
Diverse ideals and philosophies, which influence perspectives on and studies of reality and resulting contributions to economic science, may result in different, valuable insights as well as biases and blind spots; and we need to learn to appreciate impartially and combine the valid elements of all such contributions, and eliminate the illusions, exaggerations, distortions, etc.
Economics, like other fields of knowledge, does not develop evenly; certain areas of research progress faster and farther than others, so that they acquire a separate identity of their own.
Economics, to a great extent even in its actual organization, has failed to recognize that the ‘theorizing’ of conceiving economic theory very likely requires for best results a dif ferent approach-a different specializa tion-from that best for the ‘theorizing’ of formulating the theory logically and mathematically.
What is currently called “economic theory” is nothing but a series of such abstractions, some more atemporal or aspacial than others, but all exposed to modifications imposed by changes of circumstances, and all of relative explanatory and operative validity, so that any dogmatic affirmation or transference derived from them may give rise to major confusions and to grave errors in policy.
We are not presented with ad hoc treatments of isolated problems, but rather with an admirable endeavour which combines intelligently practical and theoretical considerations, and illustrates the scope of economics as a science distinct from the other fields of “tooled” human knowledge.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Nicos E. Devletoglou
0.856
The book argues that economics has developed under the impact of a variety of forces: ideological debates, practical economic and political problems, the climate of opinion, and the drive to achieve scientific validity.
While this contention is often rejected, at least implicitly, by many modern critics of economic theory, it will be contended in what follows that the distinction is valid and important to economic theory, both from the standpoint of its method and its goals.
When we begin to ask our students to adopt a critical attitude toward economic theory, I believe in the future, economic science shall emerge with its own eclectic methods under a philosophy of science similar to other empirical sciences. ”
When we begin to ask our students to adopt a critical attitude toward economic theory, I believe in the future, economic science shall emerge with its own eclectic methods under a philosophy of science similar to other empirical sciences. ”
“22 Such views betray not only insufficient appreciation of the complexity of the subject matter of economic an- thropologNy but also gross misunderstanding of conventional economics, which until recently was concerned exclusively with our own type of economy.
Without some restriction of this kind, economic philosophy is liable to roam erratically around the philosophical aspects of a puzzling galaxy of minor and major economic problems and to be as vague and diffuse as in a case in which satisfaction of our first and necessary condition is ignored for the sake of an overrated worldview cult.
Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and Theoretical Economics
THEO SURANYI-UNGER
0.838
With the growth in numbers of the economists from, say, the 1880’s on, and the emergence of a variety of kinds of economists, so that no layman needed to be at a loss in finding some school of economics which provided him with professional justification for whatever policies he was attached to, methodological controversy has now largely ceased to be one between economists and the outside public and has become almost wholly a private dispute within our professional ranks, except that our sister disciplines continue to take pleasure in demonstrating that the motes in our eyes are of larger dimensions than the beams in their own.
As has often been remarked, economists of all epochs have been compelled by the social environment to be far more opportunistic than their colleagues in other scientific fields, with the result that their attention has been concentrated upon the economic problems of their own time.’
Some Preliminary Remarks “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.
Such men have set themselves to work to make and to perfect such machinery; but neither by their precept nor by their practice have they given support to the doctrine that the student of economic science should rest content there with.
Pure economic theory is capable of demonstrating that a contention may be internally inconsistent or of revealing its hidden assumptions, and an economist armed only with such analytical equipment may play an important role in practical affairs; but this is not the whole of economics.
Economic theory should not be criticized for abstraction; rather, it should be questioned from time to time about the continuing appropriateness of its choice of premises.
Because, as noted earlier, economics cannot accurately blueprint economic reality and lacks the degree of finality- producing power characteristic of some nonlife sciences, every economist is in some degree a prisoner of his own ideology, an unfounded belief in questionable tenets, and the results of a somewhat solipsistic ratiocinative process.
The language of economic theory, like any language, provides a framework for thought; but at the same time, it constrains thought to remain within that framework.
Even should economists recognize that if economic science is to express its full potential for bettering the human condition it must respond not just to the technical, but to the practical and emancipatory interests as well, the question remains as to how the body of economic theory might be restructured.
In the process, it reveals some widespread misconceptions among economists about the nature of economic science, and shows how these misconceptions have not only been responsible for much confusion but have also critically influenced the development of economic theory.
6 “To accept the distinction between ‘pure’ and ‘applied’ economics as generally valid and fundamental is not only to accept the view that ‘theory’ in its pure form can have an independent career but that it can be validated in some way other than by ‘application’ .
The thesis that the validity of the behavioral foundations of economic theory could be established by observation might be relatively easy to demolish.20 The notion that there is an aspect of our behavior which corresponds to the behavioral assumptions of neoclassical economic thought and that is necessarily true cannot be so easily controverted.2’ One could ask, of course, whether this made for a disci- pline which is very meaningful or useful, but that is another question, and one to which Knight had an answer.
The cluster gathers 681 sentences from our corpus. It represents 0.42% of all the sentences selected over the whole period.
The community exists from 1920 to 1939.
The most recurring authors are O. H. Taylor (34 sentences), Frank H. Knight (28 sentences), Talcott Parsons (22 sentences), John R. Commons (17 sentences), Raymond T. Bye (16 sentences), Paul T. Homan (15 sentences), Jacob Viner (13 sentences), Felix Kaufmann (11 sentences), Frank A. Fetter (11 sentences), E. S. Mason (10 sentences).
The most recurring journals are The American Economic Review (163 sentences), The Quarterly Journal of Economics (142 sentences), Journal of Political Economy (134 sentences), Economica (67 sentences), The Economic Journal (61 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
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Marshall’s conception of rationality is much more absolute, but his ruling out the rational satisfaction of those wants which he calls “artificial” from a role in social progress, clearly shows the relation of rationality to activities in his doctrine.
This dictum is an obvious application to the institutions of primitive man of the criterion of pure rational utility, a principle which is not always valid as a determinant factor even in our own society.
The long gropings of economic thinking have at length resulted in isolating from its ethical and historical complex the logico-mathematical concept of the equilibrium of price relationships which would result if man were guided wholly by intelligent individualistic self-interest in a market milieu where land, capital, and personal services constituted the objects and agents of his acquisitive activities.
was based upon the idea that economic phenomena are governed by natural law and that efforts to control them are attempts to interfere with the inexorable working of nature; that, at the best, such efforts are bound to be futile, at the worst they may do much harm.
Since orderly action is made paramount and since the legal system and processes are made the main custodians of orderly change and action, the rationalization and justification motif which accompanies Professor Commons’ excellent description of present economic practices is explicable.21 Pragmatism is the philosophy of experience, practical results and experimentation.
And by way of special warning to the living and unborn men who were to ponder his words, our author inserted here a footnote: “The clearly understanding this principle is, I am persuaded, of the utmost importance to the science of political economy.”’
This circumstance leads one to raise some questions as to the nature of such a statement considered as an economic law or principle and as to its significance and usefulness.
If we are to believe Pareto’s original statemen’t that men’s economic actions are logical, then it follows that logical actions are at least as important as non-logical actions in determining the form and changes of society.
It has the same limitations in a much more pro- FRANK H. KNIGHT 429 nounced degree, notably because economic behavior has no partially definite objective, instrumentality, and procedure, corresponding to cure, medicine, and taking medicine, in the illustration.
The great names in the history of economic thought are to a remarkable extent prominent also in the history of moral science and of logic, and it is no more probable, than from the standpoint of economics it is desirable, that this condition of affairs will be greatly changed in the future.
A contrast is implied between the “natural” or spontaneous tendencies which are there at work and are described by economic “laws,” and the ” artificial ” or deliberate regulation of economic life by the state or by some other authority.
In both cases, however, the argument presupposed the possibility of the achievement, by rulers and by ruled, of a level of intelligence or rationality at which conduct would be determined, not by the immediate and particular environments and interests of the actors, but by those “real” interests which were held to be identical with the general interest of society.
18 Knight’s remarks on this point are cogent: “It is worth repeating that the notion of perfectly economic behaviour involves contradiction or antimony.
This approach is all the more indispensable because of the fact that the notions here in question - namely, those connected with the particular significance then attached to the idea of “natural laws,” in the minds both of economists and of contemporary workers in other sciences - were not adequately thought out and expressed by anyone, but were merely an elusive part of the “mental climate” or “atmosphere.”
Many of these measures are no longer regarded in civilized nations as lying within the field of economic policy, in consequence of the fact that our refined ethical sense leads us to consider as unmoral conduct of an opposing tendency; but one who recalls the laws of antiquity and takes into consideration the habits of primitives, and even the feelings of the lower classes of our own time, will be convinced that even today some of these principles, and at other times a greater number of them, find or have found their justification in considerations of economic advantage.
If the various constituent elements out of which such pseudo-principles are made up be separated from each other, if the general proposition be carefully distinguished from all kinds of working hypotheses concerning the facts, then the limitations of the generality of the law will disappear, and the general principle will be reached ” on which each individual, deliberately, blindly, or impulsively, adapts his conduct to the terms on which alternatives are offered to him by nature or by man,” and it will 1 Of wide scope is here the assumption that an individual chooses his objectives in a ” rational way ” as a ” normal business man ” does.
When Carlyle accused them of being fatalists, he was mistaken; but he was not so far wrong when he criticized them for supposing that all society’s problems could be solved by tinkering with mechanisms, and insisted that a change in the spirit and ideals of the nation might be far more important.8 To return to my original proposition in this whole part of the discussion, we have to conclude, I think, that in more ways than one the “laws” of economic theory are far from being “inexorable.”
Many of these measures are no longer regarded in civilized nations as lying within the field of economic policy, in consequence of the fact that our refined ethical sense leads us to consider as unmoral conduct of an opposing tendency; but one who recalls the laws of antiquity and takes into consideration the habits of primitives, and even the feelings of the lower classes of our own time, will be convinced that even today some of these principles, and at other times a greater number of them, find or have found their justification in considerations of economic advantage.
When, then, an economist-like Professor Commons- spends half a life-time wrestling with the law, it comes as a shock to find law not only an obstruction, but a tool; not only a brake, but a lubricant; not only conditioned by, but itself conditioning economic life.
As economics progresses in the direction of a description of economic behavior, serious questions are raised, not only as to the vitality of the older types of economic law, but whether anything deserving the name “economic law” can survive.
W. H. Kiekhofer , John Maurice Clark, Paul T. Homan , Hugh M. Fletcher , Max J. Wasserman , Willard E. Atkins , Francis D. Tyson , William W. Hewett , R. T. Ely
0.819
The great names in the history of economic thought are to a remarkable extent prominent also in the history of moral science and of logic, and it is no more probable, than from the standpoint of economics it is desirable, that this condition of affairs will be greatly changed in the future.
was based upon the idea that economic phenomena are governed by natural law and that efforts to control them are attempts to interfere with the inexorable working of nature; that, at the best, such efforts are bound to be futile, at the worst they may do much harm.
In the present instance, our author, though he wisely avoids any far-flung excursion into the field of discussions as to the precise nature of “economic laws,” is careful to distinguish26 between at least two types of “law”: the term “law,” in the one instance, being equivalent to the notion of a “rule of adequate causation,” and, in the other, to a tendency to continuouss7 repetition.”
May I suggest also that this ethical theory is of great importance for understanding the doctrine of the economic harmony between the interests of the individual and the interests of the public which we found maintained in the Wealth of Nations?
A quotation in greater length from Principles of Economics, by Alfred Marshall, professor of political economy in the University of Cambridge, will also be submitted.
DISCUSSION ABRAHAM BERGLUND: There are two tendencies often marking the formulation of economic laws or theories which expose them to much justifiable criticism.
An economic inquiry may be colored and shaped by an ethical interest, even when the inquiry is kept free of formal ethical postulates.6 Economics may be made to deal only with “what is,” as distinct from “what ought to be”; and yet the particular report it makes, the precise aspects of “what is” to which it attends, may be determined by an interest in “what ought to be.”
If you study speeches in Parliament, the pamphlet literature, the language of Committees, the play of mind in enlightened circles, you find everywhere this continual refrain; the argument that each man pursues his own interest, that economic laws show how surely that pursuit promotes the public good and how dangerous it is to try to regulate it.
The long gropings of economic thinking have at length resulted in isolating from its ethical and historical complex the logico-mathematical concept of the equilibrium of price relationships which would result if man were guided wholly by intelligent individualistic self-interest in a market milieu where land, capital, and personal services constituted the objects and agents of his acquisitive activities.
This circumstance leads one to raise some questions as to the nature of such a statement considered as an economic law or principle and as to its significance and usefulness.
The cluster gathers 1436 sentences from our corpus. It represents 0.89% of all the sentences selected over the whole period.
The community exists from 1920 to 1939.
The most recurring authors are Arthur W. Marget (50 sentences), Frank H. Knight (45 sentences), F. A. von Hayek (31 sentences), R. F. Harrod (23 sentences), Simon Kuznets (23 sentences), D. H. Robertson (21 sentences), R. W. Souter (21 sentences), Lionel Robbins (20 sentences), Henry Schultz (19 sentences), A. B. Wolfe (17 sentences).
The most recurring journals are The Quarterly Journal of Economics (278 sentences), The American Economic Review (249 sentences), Journal of Political Economy (214 sentences), The Economic Journal (183 sentences), Economica (176 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
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Judgments as to the “objective rationality” or “irrationality” of economic conduct can only be fragmentary and negative, apart from the cases where people act in a way which according to their own stated expectations, or the direct logical implications ex definitione contained in them, will lead to less than maximum possible returns, - in which case they may be said not even to be acting with what we have called subjective rationality.
Zeitschrift für Nationalökonomie / Journal of Economics
H. T. N. Gaitskell
0.792
In distilling from our reasoning about the facts of economic life those parts which are truly a priori, we not only isolate one element of our reasoning as a sort of Pure Logic of Choice in all its purity, but we also isolate, and emphasise the importance of, another element which has been too much neglected.
To say that this sort of conceptual marionette manipulated by the theoretical economist as a preliminary thought-clearing exercise is “rational” or has perfect foresight may be misleading.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.779
By rational economic behavior we mean the allocation of resources between alternative uses subject to diminishing returns measured in some common unit of value, in such a way as to realize maximum total return in value units to the choosing economic subject.
But instead of accepting the next postulate, that of rationality in economic behavior, it must proceed to formulate a more realistic assumption, one that would allow the recognition of the extreme diversity of forms of behavior which we observe in reality, and would permit a deduction of both secular movements and cyclical fluctuations as parts of a normal state of economic phenomena.
One cannot quarrel with this procedure, except that preoccupation over and satisfaction with our economic reasoning under these conditions may blind us to the fascinating areas of queer and strange economic behavior opened up by the very complexities which have been ruled out.
It may be noticed in passing that economic theory should have no qualms in using conceptions based on such factors, since the very notion of reason implies that they can and should be taken into account.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
A. F. McGoun
0.752
Preferences which are the result of ignorance or inertia are almost entirely irrational, though the momentary inconvenience and discomfort which a change of custom inevitably involves, entails an element of rationality…. ” Imperfection of the market is purely rational if it takes its basis in preferences which correspond to real satisfactions.
Further, the whole tendency of modern economic reasoning is to lay less stress on the effects of this or that action in stimulating or checking the Imotives for displaying this or that kind of activity, and more stress on its effects in expanding or contracting the sources from which that activity emanates.
The deliberations which form the practical aid in every kind of business naturally take the form of probability judgments, and why should not this be reflected in the very basis of the pure theory that tries to interpret the realities of economic action?
The sheer volume of literature which has appeared on the matter in every European language during the past decade2 - much of it from the pens of economists of high professional standing such as Professors Bonn, Sombart, Gottl-Ottlillienfeld, Herbert von Beckerath, Hirsch - will not permit “rationalization” to be dismissed, however convenient it may be, as a mere catch-word, tho many writers, particularly the German, have been wont to do so more recently.
In such cases, therefore, it may be an essential part of the problem to study the ways, rational or irrational, in which consumers’ decisions are, in fact, reached; if desirable, it may then be possible to modify the existing procedure by means of education 1 Mrs. Robinson, EcoNoMIo JOURNAL, Sept. 1935.
Their support of the logical method of analysis that accompanied the earlier naive acceptance of the analogy depends upon a much more modest belief - that freedom of economic action and a rational regard for personal self-interest are still sufficiently active forces in the world to lead to enlightening generalizations.
It is, then, precisely the element of “rational” or mathematical necessity, which Lederer and Dr. Kuznets regard as inconsistent with the nature of Economic Dynamics, that justifies, in “statics” and in “dynamics” alike, the so-called “mechanical analogy.”
How far people act in an “objectively” rational way must remain quite indefinite; because, in the first place, in a world full of uncertainty, and with economic science still able to afford very little guidance, most decisions in economic life have to be taken without recourse to anything which can suitably be called “objective rationality” - though it is in accordance with some such objective criterion or other that the term is applied to expectations, or the process of arriving at them, in every day life.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.725
THE ECONOMIC JOURNAL SEPTEMBER, 1930 PROBLEMS OF RATIONALISATION AT the Annual Meeting of the Royal Economic Society, held on Wednesday, 28th May, 1930, at 5 p.m., at the London School of Economics, with Professor A. C. Pigou in the Chair, a discussion was held on the above topic, of which the following is a slightly curtailed report.
I am certain there are many who regard with impatience and distrust the whole tendency, which is inherent in all modern equilibrium analysis, to turn economics into a branch of pure logic, a set of self-evident propositions which, like mathematics or geometry, are subject to no other test but internal consistency.
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
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Further, the whole tendency of modern economic reasoning is to lay less stress on the effects of this or that action in stimulating or checking the Imotives for displaying this or that kind of activity, and more stress on its effects in expanding or contracting the sources from which that activity emanates.
If economic theory is to be brought closer to the actual conditions which it sets out to explain, it must, in one way or another, develop an apparatus which displays and can handle the dependence of cost upon the character of the market and the closely connected phenomenon that ” demand ” is not simply a datum to which the producers adjust themselves, but, in large measure, created and moulded by them.
That for all investigators of economic phenomena it keeps in view by way of caveat the fact that the demand and the supply of everything bought and sold, and all the relations between quantities that are exchanged and quantities into which things are mutually transformed, are interdependent.
In distilling from our reasoning about the facts of economic life those parts which are truly a priori, we not only isolate one element of our reasoning as a sort of Pure Logic of Choice in all its purity, but we also isolate, and emphasise the importance of, another element which has been too much neglected.
It is a remarkable fact that economic reasoning, whenever consistent attempts are made to arrive at an understanding of the ever-changing phenomena of economic life, is bound to adopt some sort of equilibrium concept as an indispensable guide to the perplexing variety of economic magnitudes and their interrelations in space and in time.
One cannot quarrel with this procedure, except that preoccupation over and satisfaction with our economic reasoning under these conditions may blind us to the fascinating areas of queer and strange economic behavior opened up by the very complexities which have been ruled out.
It is curious that the author of this passage and the distinguished eontribution to the applied theory of money in which it occurs, should have recently been singled out for public censure for ” unscientific” methods of procedure, a very general character-the so-called economic principle, the assumption of an order of preference, etc.
It will have served its purpose if it calls to the attention of students who may be discouraged by the difficulties and disagreements of equilibrium theory, by the apparent emptiness of its acknowledged conclusions and the apparent dubiety of its important conclusions, that there exists in the body of economic theory a system of propositions and conclusions on the subject of wealth which can claim without question to give us an insight into the processes of social life possessed perhaps by no other of the social sciences.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
K. E. Boulding
0.794
I am certain there are many who regard with impatience and distrust the whole tendency, which is inherent in all modern equilibrium analysis, to turn economics into a branch of pure logic, a set of self-evident propositions which, like mathematics or geometry, are subject to no other test but internal consistency.
Ignoring all economic arguments in connection with this subject, and confining it strictly to its relation to the fixing of a selling price, the writer is firmly of the opinion that it is necessary to consider interest in this connection in order to determine what would be a fair profit in a given case.5 It is hard to understand such a position unless a partial explanation be found in the first participial phrase of the last sentence of the quotation, “ignoring all economic arguments.”
It would be well if our discussion could start from a concept which is used with some precision by economists and which, though too abstract to be of concern to accountants, is intelligible to them.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
R. G. H. Smails
0.790
In so far as one is dissatisfied with “static”, a-monetary analysis, omitting the uncertainty factor, - which alone may be said to create any problems of conduct, economic or otherwise, - the method of deduction from some “Fundamental Assumption” or “principle” concerning economic conduct is more or less useless, because no relevant “Fundamental Assumption” can, on our present knowledge, be made.
Zeitschrift für Nationalökonomie / Journal of Economics
T. W. Hutchison
0.789
It is especially important to do this because most of the criticisms of the theory which have been made up to the present have sought the solution of the alleged dilemma chiefly in a proportional adjustment of the supply of money to the enlarged volume of production.43 To me, at any rate, the fundamental error of the theory seems to arise rather in the presentation of the origin of the dilemma, the supply of money remaining unchanged.
If, however, one of a continuous series of money prices is differentiated from its immediate neighbors by circumstances which make it difficult for any other price to be substituted for this one without “calculating things or making close comparisons” then one may expect the result of any upward price change to be a greater diminution of demand than would be the case if only a greater money expenditure and not an increased expenditure of both “trouble” and money was involved.
The cluster gathers 434 sentences from our corpus. It represents 0.27% of all the sentences selected over the whole period.
The community exists from 1920 to 1939.
The most recurring authors are R. F. Kahn (26 sentences), Nicholas Kaldor (19 sentences), Frank H. Knight (14 sentences), C. L. Paine (11 sentences), F. H. Knight (11 sentences), J. K. Galbraith (11 sentences), Paul T. Homan (11 sentences), A. J. Nichol (10 sentences), Edward H. Chamberlin (10 sentences), Frank Albert Fetter (9 sentences).
The most recurring journals are The Quarterly Journal of Economics (96 sentences), The American Economic Review (95 sentences), The Economic Journal (90 sentences), Economica (52 sentences), Journal of Political Economy (46 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
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The imperfection of the market is purely irrational if it takes its origin in preferences which obtain no justification, when they are satisfied, in actual enjoyment, and the thwarting of which causes no loss of satisfaction. ”
Here is an argument for ” rationalisation ” which, deriving its strength from the absolute, rather than the relative, degree of imperfection of competition ruling in the industry, should make a strong appeal to Mr. Paine’s common sense.
We must surely fall back on the commonsense view that if competition would not be imperfect but for the imperfection of knowledge, then the reproduction of the conditions of perfect competition ought to be the objective of any scheme of intervention.2 We may now pass on to consider the case for rationalisation which is based on the existence of consumer’s inertia.
Furthermore, it is demonstrable that under our ideal conditions rational economic behavior on the part of the entrepreneur is independent of his own preferences as to time of consumption.9 8.
Turning his guns upon the postulates which support schematic systems of economic theory, deriding in particular the rational character of consumers’ choices, the regulatory effect of competition, and the coincidence between personal acquisition and physical production, for every economic thesis he propounds a contradictory antithesis, leaving the bewildered reader to effect such synthesis as his predilections suggest.
But any kind of natural unit from which to a preponderating extent the entrepreneur ranks are recruited will, if imperfection is on the whole irrational rather than rational, be supplied under conditions of laissez-faire on a scale which exceeds the social optimum.
1 The most obvious example of rational imperfection of competition is that provided by what is ordinarily called a ” monopoly,” where the whole of the production of a ” commodity ” is in the hands of a single entrepreneur, though even here Marshall’s distinction 2 between long- and short-period elasticity of demand reminds us, that ” as if increase of appetite had grown by what it fed on,” an element of irrationality is often present.
In the absence of any attempt whatever at a rational separation of market spheres in terms of the best social results achievable, a chaotic, wasteful, specious competition may persist for a long time in an economic system wherein concern for efficiency and economy is incidental to the pursuit of profits.
We are now left with the case where the services of the entrepreneur cannot be varied in amount, and where, in spite of the fact that the 1 I prefer to use the term ” imperfect knowledge,” since the ” irrational preference ” seems to imply an element of judgment on consumers’ preferences which is not necessarily associated with this kind of analysis at all.
Irrationality of imperfection is to be detected by imagining that each consumer in turn is forcibly removed from the firm with which he is accustomed to deal to some other firm which meets the same want at a cost which, according to the general consensus of the market, is the same as that incurred hitherto.
The compatibility of such conditions with long-period equilibrium, which the theory of imperfect competition demonstrates, might be a valid ground for compulsory “rationalization.”
If it is possible to distinguish between rational and irrational preference, it is clearly an important step in the analysis of under-utilisation of factors and excess capacity under conditions of imperfect or monopolistic competition.3 And if the distinction is clear cut, then it is known, in -a rationalisation scheme, where entrepreneurs might profitably be retired.
It is said that economic theory rests on assumptions contrary to fact, such as the “economic man” and perfect competition in free markets; whereas motives are not always economic, and competition is limited in many ways.
In so far as the forcible transfer of a consumer from one firm to another has no effect on his scale of preferences for the products of the different firms, the imperfection of the market may be said to be rational.”
It should either be compared with the rationale of a competitive society-with the implications for possible constructive reform which it would imply- or a realistic effort should be made to imagine the impact upon the rationale of a planned society of the various drives and pressures of actual operation.
It is necessary to distinguish between two extreme types of market imperfection,3 the purely rational 1 Mrs. Robinson’s treatment is based on the tacit assumption that each entrepreneur competes for his factors with similar entrepreneurs.
Historically, as well as analytically, it is conceivable that we might have worked downwards from monopolies, instead of upwards from competition, in order to obtain the position now called rational administration.
One is left with the impression that, as soon as we go beyond cartels of conditions, and consider cartels of restriction, there is a conflict between two ideas of rationalisation.
Among the 50 closest sentences to the cluster’s centroid, 8% mention the terms ‘rational’ or ‘rationality’
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In the absence of any attempt whatever at a rational separation of market spheres in terms of the best social results achievable, a chaotic, wasteful, specious competition may persist for a long time in an economic system wherein concern for efficiency and economy is incidental to the pursuit of profits.
We must surely fall back on the commonsense view that if competition would not be imperfect but for the imperfection of knowledge, then the reproduction of the conditions of perfect competition ought to be the objective of any scheme of intervention.2 We may now pass on to consider the case for rationalisation which is based on the existence of consumer’s inertia.
Turning his guns upon the postulates which support schematic systems of economic theory, deriding in particular the rational character of consumers’ choices, the regulatory effect of competition, and the coincidence between personal acquisition and physical production, for every economic thesis he propounds a contradictory antithesis, leaving the bewildered reader to effect such synthesis as his predilections suggest.
If all industries were being rationalised the reproduction of the conditions of the average degree of imperfection of competition would be one criterion, the uniform reproduction of the conditions of any other degree of imperfection of competition would be another criterion, which would lead, as a limiting case, to-simplest of all-the uniform reproduction of the conditions of perfect competition.
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In the absence of any attempt whatever at a rational separation of market spheres in terms of the best social results achievable, a chaotic, wasteful, specious competition may persist for a long time in an economic system wherein concern for efficiency and economy is incidental to the pursuit of profits.
Economic theory grew up largely, and rightly so, in terms of an assumed free competition, a condition which no doubt described more truly the conditions from which the classicals drew their observations than is the case for conditions surrounding us at the present time.
This would enable us to look upon the “limited competition” of the real world as a blend, in different degrees, between the limiting cases of purely imperfect and purely monopolistic competitions; and it would also be in accordance with the relative importance the authors of the two expressions now seem to attach to these two forces in causing the phenomena they describe.
We must surely fall back on the commonsense view that if competition would not be imperfect but for the imperfection of knowledge, then the reproduction of the conditions of perfect competition ought to be the objective of any scheme of intervention.2 We may now pass on to consider the case for rationalisation which is based on the existence of consumer’s inertia.
We are thus led to believe that when production is in the hands of a large number of concerns entirely independent of one another as regards control, the conclusions proper to competition may be applied even if the market in which the goods are exchanged is not absolutely perfect, for its imperfections are in general constituted by frictions which may simply retard or slightly modify the effects of the active forces of competition, but which the latter ultimately succeed in substantially overcoming.
II Much additional evidence serving further to contradict the author’s conclusions in chapter i, but not so recognized by him, is contained in his next nine chapters which he intends and believes to answer only a different question: “How does the resulting imperfectly or monopolistically competitive system work?”
It is my purpose in the following pages to set out what appear to me to be the principal points of significance for economic theory in the doctrines relating to Imperfect Competition that have been recently evolved.’
Many of the obstacles which break up that unity of the market which is the essential condition of competition are not of the nature of ” frictions,” but are themselves active forces which produce permanent and even cumulative effects.
It would seem to follow that whatever economic evils there may be arise not from the excess but fromthe defect of free competition, and that whatever we may seek to do by way of remedy must lie- some exceptional cases apart-not in an endeavour to control the industrial system in the general interest, but in the removal of obstructions to the free disposal of our faculties and our belongings.
While we may readily admit that economic competition needs at times to be controlled in its own interest, that is, in order to preserve that freedom which is its very foundation stone, it is equally true that economic forces are at times called upon to preserve society from modes of conflict which have their origin in other than economic motives, where the struggle is more harmful and unless checked will completely destroy the weaker contestants.
Some of the attempts to define a “perfect competitive market” would assuredly involve their authors in paradoxes from which they could extricate themselves only by admitting that “free,” competition is, if not impossible, at least humanly very improbable.8 Not to go into the difficulties involved in the concept of a perfect competitive market, however, we may gather from the texts that the two main features of what is commonly called a competitive market are, first, a certain contact and “organization” between all the traders; and second, one price, at a given time, for all.
At the outset the author stated his thesis to be that current monopolistic conditions “arose out of contradictions deep in the very nature of competitive individualism .
“The theory of free competition developed by economists is not a natural tendency towards equilibrium of forces but is an ideal of public purpose adopted by the courts, to be attained by restraints 4.
It is said that economic theory rests on assumptions contrary to fact, such as the “economic man” and perfect competition in free markets; whereas motives are not always economic, and competition is limited in many ways.
Having now admitted a certain element of imperfect competition into our imaginary system, we should logically be obliged to defer further treatment of this portion of our subject until we had dealt with imperfect competition in the later stages of this article.
The economic process, therefore, does not take place in large unform markets, but by a multifarious interaction between concrete productive units, now by substantially free competition, now by a partly monopolistic price policy, sometimes by combination and occasionally by warfare.
Intertemporal cluster 23: rationalisation, productive_capacity, productive_resources, productive, industry
The cluster gathers 797 sentences from our corpus. It represents 0.49% of all the sentences selected over the whole period.
The community exists from 1920 to 1939.
The most recurring authors are Frank H. Knight (45 sentences), T. E. Gregory (17 sentences), Nicholas Kaldor (13 sentences), Arthur W. Marget (12 sentences), F. A. von Hayek (12 sentences), R. F. Harrod (12 sentences), A. B. Wolfe (10 sentences), Macgregor (10 sentences), Stokes (10 sentences), Abram L. Harris (9 sentences).
The most recurring journals are The Economic Journal (155 sentences), The American Economic Review (152 sentences), Journal of Political Economy (136 sentences), The Quarterly Journal of Economics (131 sentences), Economica (84 sentences).
Top TF-IDF terms describing the community
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TF-IDF
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industry
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Year
Journal
Authors
Words Similarity
All rational economic initiative is taken in the light of a whole chain of values attaching to the services of the different productive resources which work together to produce the final product; and the determinateness of such values under ideal discrimination is nothing more than a theoretical abstraction.
As distinct, therefore, from the pure desire to rationalis that is, to organise industry in a systematic way under some kind of unified control, it is not easy to assign its right place to the ” revulsion against risk,” on which also the desire for combination has rested its case.
It is conceivable that “a completely rationalized world might turn out to be one in which, if organized so as to obtain their de facto economic worth, a certain proportion of workpeople could find employment at very high wages, while the remainder could hardly find it on any terms at all.
To attempt to direct the economic system toward human welfare without understanding human nature would be quite as futile as the attempt to cure disease without a preliminary study of physiology, or to do-what no skilled worker will defend-work in any material without an intimate understanding of its composition, its workability, and its amenability to different modes of manipulation.
I assume that it would be generally agreed that no effective program of rationalization could be carried on in any economic field which was not in a high state of organization or which lacked leadership at the top or discipline in the mass.
The indication of an irrational element in our industrial development, of a “tendency to increase” which cannot be harmonized with classical doctrines of profit and loss, is worth attention.
It would hardly be necessary to stress this point, if it were not that the economies of large-scale operations and of ” mass-production ” are often referred to as though they could be had for the taking, by means of a ” rational ” reorganisation of industry.
In considering the relations between rationalisation, the market and unemployment, there is one obvious point which tends to be lost sight of in popular discussion.
And again, “rationalization is the systematically and deliberately forced competition between machines, made out of flesh and blood, and machines made out of steel and iron, in order that the cumulating return will fall singly and solely into the lap of the entrepreneur.”
Or must we argue with Mr. G. D. H. Cole that rationalisation ” might succeed in lowering substantially the cost of producing each unit of the national output: but it would only find itself unable to make use of the great new productive power of which it had become the master.
Always every change, every alternative, every device, every proposal shall be tested for conformity in production, distribution, and consumption with the principle of the maximum of output from the at-present-conceivable minimum of energy and materials input.7 In common with its cultural antecedent - the age of the Aufkldrung - the “rationalization era ’ has been essentially rationalistic, egalitarian, secular, and naively optimistic.
In other words, I think one may say that the great economy of rationalisation is to put business-for the first time possibly-in the hands of rational people.
The greater part of that activity which may be described as economic in character, because its effect is the production of new wealth, may, therefore, be regarded, from the point of view of the individual, as uneconomic in character, inasmuch as it does not give the economic return which ought in reason to be its justification.
Whilst the foregoing analysis may be sufficient to establish a presumption that in recent years the process of rationalisation has been responsible for the creation of part of the existing volume of unemployment, in the end one is forced back upon general economic reasoning.
The productive capacity of any concrete agent may be more or less realistically analysed into qualities resulting from previous human activity and those given by nature, and the previous human activity will have been more or less “economic” in intention and result.
Rationalisation represents the idea of enlightened leadership embracing an entire industry in its relation to other industries and to the national economy.”’
It may be suggested too that for the economist who seriously intends the construction of a theory of production and who intends to treat production as something more dignified than as a source of supply for the market, a field of theory entitled to separate endeavor and understanding, the questions of human nature will be found to be the most difficult and the most immediate.
Among the 50 closest sentences to the cluster’s centroid, 4% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It would hardly be necessary to stress this point, if it were not that the economies of large-scale operations and of ” mass-production ” are often referred to as though they could be had for the taking, by means of a ” rational ” reorganisation of industry.
All rational economic initiative is taken in the light of a whole chain of values attaching to the services of the different productive resources which work together to produce the final product; and the determinateness of such values under ideal discrimination is nothing more than a theoretical abstraction.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
If a certain good formerly produced in limited amounts by a scarce group of workers can be produced equally well by a more plentiful and therefore less expensive group, there will be -a difference between its market value and the cost of the labor required to produce it, until the supply is increased beyond its former proportions.
The indication of an irrational element in our industrial development, of a “tendency to increase” which cannot be harmonized with classical doctrines of profit and loss, is worth attention.
Of course recognition of the fact that there is a limit to the desirable expansion of the production in every industry is inherent in the theory of marginal utility, but that theory has never made much way among the general public, simple as it is, because instead of being expressed in plain language understood by the people, it has been treated as a classroom plaything to be illustrated by lines and curves on a blackboard, which, like the stone and wooden idols of the more degraded religions, come to be revered for themselves rather than for the things they were originally intended only to represent.
The results may be very simply described without any concept of freedom or restriction of entry - without even the concept of an “industry”: some firms in the economic system earn no profits in excess of the minimum counted as a cost, others earn more than this, and in various degrees.7 Last among the misconceptions must be mentioned Mrs. Robinson’s attempt to show that “imperfection” is not to be associated with differentiation of the product.
There is coming into existence an economics of capacity to produce, of adequate resources, of advancing techniques, of organizations of industries which are subject to man’s control.
A given amount of money will purchase relatively a much larger amount of capital equipment than of labor, hence the shift of production wherever possible to plants which use the least labor and the change to methods of production which involve the use of least labor.
The treatment of the history of the analysis of value, cost and interest affords examples in point,2 and it must be left to the reader to form his own opinion about the correctness or otherwise of our thus formulating what seems to us to be received doctrine: Industrial expansion, automatically incident to, and moulded by, general social growth-of which the most important purely economic forces are growth of population and of savings-is the basic fact about economic change or evolution or ” progress “; wants and possibilities develop, industry expands in response, and this expansion, carrying automatically in its wake increasing specialisation and environmental facilities, 1 As a matter of fact, this is what the position of our highest authorities comes to.
Hence the high cost of production of a certain commodity is to be attributed not to the great amount of labor-effort which it requires, but to the scarcity of the type of worker; and if the cost of some other commodity is low, it is not because it took very little labor to produce it, but because the type of worker employed is very abundant, and, therefore, cheap.
As an example of the influence of the conditions of supply, it may be noted that while the fact of ” scarcity ” of factors of production-the fact that the factors of production are not all of them in perfectly elastic supply’o the industry-has nothing whatever to do with the question of whether it is socially desirable to alter the industry’s output, it does affect the amount of the alteration, if any, which it is socially most desirable to bring about.
It may be suggested too that for the economist who seriously intends the construction of a theory of production and who intends to treat production as something more dignified than as a source of supply for the market, a field of theory entitled to separate endeavor and understanding, the questions of human nature will be found to be the most difficult and the most immediate.
Will Mr. Harrod upon reconsideration not agree that the output which in present circumstances it is desirable to aim at is inevitably that which corresponds to the complex moving equilibrium of utilities and costs’ in which the adjustments that appeal to the other agents of production although logically coordinate are dynamically subordinate to those which appeal to the entrepreneurs with whom the direct initiative in industry rests ?
Water power, huge plants, marvelous machinery, and perfect management are all of little value, unless they can be operated; and they cannot be used continuously for purposes of production unless there is a market in which their product can be sold; and this market cannot exist unless sufficient wages are paid to the workers.
Herbert Feis , John P. Frey , Waddill Catchings, W. A. Berridge
0.792
The alternative proposition is that the most important subjects of economic study, while useful and limited in supply, are not appropriable and not fully exchangeable, and thus are not wealth in the full sense.1 Since the consequences of this have been devreloped by a number of writers, I will merely mention one very interesting corollary: namely, that in the marginal-productivity economics power to produce cannot exist apart from power to withhold.
We find in more than one place the statement that the relative values of commodities are “regulated” or “governed” by the “relative quantities of labor bestowed on their production.”
The direction of demand, the distribution of resources among industries, even the level of incomes are now substantially determined, and tend more and more to be determined, with the progressive concentration of industrial control, by the deliberate, calculated decisions of individuals and groups of individuals, in whom happens to be vested the management of modern industry.
Economic theory does not and cannot show a priori that it must be so; but the unanimous experience of all the technique of production teaches us that it is so.”
The cluster gathers 2793 sentences from our corpus. It represents 1.72% of all the sentences selected over the whole period.
The community exists from 1920 to 1949.
The most recurring authors are Frank H. Knight (152 sentences), Talcott Parsons (99 sentences), Paul T. Homan (62 sentences), R. W. Souter (44 sentences), Simon Kuznets (44 sentences), Trygve Haavelmo (43 sentences), Allan G. Gruchy (36 sentences), Oskar Morgenstern (33 sentences), Frederick C. Mills (31 sentences), A. B. Wolfe (28 sentences).
The most recurring journals are The American Economic Review (663 sentences), The Quarterly Journal of Economics (484 sentences), Journal of Political Economy (389 sentences), Economica (209 sentences), Journal of Farm Economics (197 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
economic_reality
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pure_economic
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economic_planning
0.0003379
economic_phenomena
0.0003329
economic_process
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economic_life
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economic_laws
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economic_thinking
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economic_theorist
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economic_relations
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generalizations
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economic_society
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social_economy
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economic_dynamics
0.0002195
economic_organization
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Top TF-IDF terms describing the community for each time window
Top terms 1920-1939
Token
TF-IDF
economic_planning
0.0010171
economic_life
0.0007900
economic_phenomena
0.0006765
economic_society
0.0006348
economic_forces
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economic_system
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economic_organization
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economic_thinking
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called_economic
0.0005195
economic_processes
0.0005124
orthodox_economic
0.0005064
economic_arrangements
0.0005039
positivistic
0.0005039
economic_unit
0.0004982
Top terms 1940-1949
Token
TF-IDF
economic_reality
0.0009993
economic_laws
0.0007732
economic_life
0.0006306
pure_economic
0.0005888
economic_law
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economic_quantities
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contemporary_economic
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economic_dynamics
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basic_concepts
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theoretical_economics
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pure_theory
0.0004566
economic_relationships
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economic_principles
0.0004305
economic_relations
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economic_thinking
0.0004035
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Title
Year
Journal
Authors
Words Similarity
Economic theory which is, I would remind you, only a part of economics, a small but important part, has been built around the assumption of “rational” behaviour.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
V. W. Bladen
0.812
Rationality in the wide sense in which Professor Lange defines it, is a necessary condition for the economic theory we are used to, but it is not a sufficient condition.
The concept of the economic man, or of instrumentally rational behavior, is valid and important, but only within limits set by these considerations, and others of a similar character.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. W. M. Hart
0.771
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
In order to substantiate and support the doctrine thus sketched we turn to consider briefly the opposite view, which is that of the “economic interpretation.”
To say that economic activity-or the conduct of the economic man-is rational behavior raises the quite relevant question: In what measure are men rational?
But this is not an “economic” doctrine; and in any case the application of the term “economy” to each individual is still unintelligible unless it implies an “end” which is not merely “positive,” but is the result of a process whereby the individual has criticized and moulded his mere “given,” unrelated “impulses” and “tendencies to action” into a unitary rational system of preferences or relative valuations.
It may be the case that one cannot afford to ignore the irrational aspects of economic life if one is to secure a well-rounded interpretation of economic activity.
The failure to separate this assumption from the general principle-under which, of course, irrational valuations fall too-leads naturally to the opinion that economic reasoning is restricted to ” rational ” behaviour and that an economist can only shrug his shoulders if he has to investigate the behaviour of individuals who in political, racial or religious fervour turn the traditional economic universe upside dowln.
We should not, through too critical use of the theoretical-equilibrium method of approaching our problem for analysis, beg this strategic area of investigation by covering all individual action under universal assumptions which give highly particular meanings to rational conduct and to the nature of individual choice.
Erven J. Long , Herman M. Southworth, John W. White
0.754
A rational economic case can be made for it under particular fact-situations; the factual conditions for its applicability are perfectly conceivable in circumstances past and future if not present.
If one attempts to unite all, or a large group of economic factors, into a single system of explanation, the judgment on what is “important” and “realistic” must, of course, be different from what it will be when some specific economic factor is considered from a narrow angle.
Of one thing at least I am certain: whatever we may think of the present state of ’economic knowledge, whatever interpretation MAY we may put upon the fairly well attested fact that in certain circumstances it has proved to have practical utility, the nature of contemporary problems is such that they are not going to be solved satisfactorily without a good deal of economic reasoning.
In order to substantiate and support the doctrine thus sketched we turn to consider briefly the opposite view, which is that of the “economic interpretation.”
But this is not an “economic” doctrine; and in any case the application of the term “economy” to each individual is still unintelligible unless it implies an “end” which is not merely “positive,” but is the result of a process whereby the individual has criticized and moulded his mere “given,” unrelated “impulses” and “tendencies to action” into a unitary rational system of preferences or relative valuations.
The failure to separate this assumption from the general principle-under which, of course, irrational valuations fall too-leads naturally to the opinion that economic reasoning is restricted to ” rational ” behaviour and that an economist can only shrug his shoulders if he has to investigate the behaviour of individuals who in political, racial or religious fervour turn the traditional economic universe upside dowln.
Of course this is not to say that all action is actually rational even in such a limited sense, but only that its rationality is one principal criterion of the abstract type of action called “economic.”
In order to give a complete explanation, however theoretical, of man’s economic behaviour, we must see it in its institutional setting, no matter if that involves us in excursions into ” history,” past or contemporary.
There certainly is little consistency to be found within a scheme of thought which criticizes one kind of economics for an unseemly insistence upon human rationality, and thereupon constructs another making quite as great demands upon the rational faculties.
There is the same insistence that economic theory must be built upon a correct view of human nature, the same attack upon economic laws which represent no more than competitive normality, the same appeal to the evolutionary viewpoint.
If it be a false goal to seek to excogitate a body of theory from a single principle, in terms of which all economic phenomena are to be explained, it is inadequate and altogether unsatisfactory to seek to interpret a body of obviously related phenomena in terms of separate and unrelated hypotheses.
Frank W. Taussig , Frederick C. Mills, F. B. Garver , Frank H. Knight , R. W. Souter , Lewis L. Lorwin , Mordecai Ezekiel
0.732
THE JOURNAL OF POLITICAL ECONOMY VOLUME 30 lurne 1922 NUMBER 3 HUMAN NATURE IN ECONOMIC THEORY I One criticism brought against conscious economic theory is that it fails to take advised and realistic account of human nature.
Economic theory which is, I would remind you, only a part of economics, a small but important part, has been built around the assumption of “rational” behaviour.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
V. W. Bladen
0.812
Rationality in the wide sense in which Professor Lange defines it, is a necessary condition for the economic theory we are used to, but it is not a sufficient condition.
The concept of the economic man, or of instrumentally rational behavior, is valid and important, but only within limits set by these considerations, and others of a similar character.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. W. M. Hart
0.771
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
To say that economic activity-or the conduct of the economic man-is rational behavior raises the quite relevant question: In what measure are men rational?
It may be the case that one cannot afford to ignore the irrational aspects of economic life if one is to secure a well-rounded interpretation of economic activity.
We should not, through too critical use of the theoretical-equilibrium method of approaching our problem for analysis, beg this strategic area of investigation by covering all individual action under universal assumptions which give highly particular meanings to rational conduct and to the nature of individual choice.
Erven J. Long , Herman M. Southworth, John W. White
0.754
A rational economic case can be made for it under particular fact-situations; the factual conditions for its applicability are perfectly conceivable in circumstances past and future if not present.
Among the 100 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
THE object of this essay 1 is not to make any original contribution to knowledge, but to bring together as it were into one picture a number of phenomena which meet with individual discussion in the accepted expositions of economic theory, but whose interconnection is not always made sufficiently plain, and whose accumulated importance is perhaps greater than used to be supposed.
If it be a false goal to seek to excogitate a body of theory from a single principle, in terms of which all economic phenomena are to be explained, it is inadequate and altogether unsatisfactory to seek to interpret a body of obviously related phenomena in terms of separate and unrelated hypotheses.
Frank W. Taussig , Frederick C. Mills, F. B. Garver , Frank H. Knight , R. W. Souter , Lewis L. Lorwin , Mordecai Ezekiel
0.877
Economic theory must isolate the ideal tendencies with which it can deal most readily; but no practical conclusions as to the real beneficence of the system can be drawn until the actual relative importance of the tendencies recognized by the general theory-which in endeavoring to explain always seems to justify-are measured in comparison with divergent tendencies and taken into account.
If economic theory is to be used in solving real problems it must be extended and and elaborated “so that it fits the actual conditions which one finds in economic; society, and so that it can be combined with the facts and phenomena and principles of the natural sciences and the other social sciences.”
Again and again in the history of economic thought, the apparent contradiction between different usages has come to be seen to rest not upon deficiencies of logic on the one side or the other, but upon differences of assumption concerning the problem to be solved.
Let us suppose there were a recognized body of economic doctrine the truth and relevancy of which perpetually revealed itself to all who looked below the surface, which taught men what to expect and how to analyze their experience; which insisted at every turn on the illuminating relation between our conduct in life and our conduct in business; which drove the analysis of our daily administration of our individual resources deeper, and thereby dissipated the mist that hangs about our economic relations, and concentrated attention upon the uniting and all-penetrating principles of our study.
In brief, I would suggest that, although there is much in current theory which furnishes material assistance in such a study of economic processes, the doctrines of classical and mathematical theory are inadequate to our present needs.
If one attempts to unite all, or a large group of economic factors, into a single system of explanation, the judgment on what is “important” and “realistic” must, of course, be different from what it will be when some specific economic factor is considered from a narrow angle.
Economic theory requires, nay necessarily is, generalization; but fruitful abstraction, to be valid and not merely logical, must meet certain tests of specificity.’
They will thus emphasize the continuity of economic thought, the persistent search for real laws, the supremacy of sensationalistic psychology in methodological questions, and the abstract nature of the generalizations reached on the basis of the theory of an “economic man.”
Since there exists such unanimity of opinion that economists may best be occupied during the present generation in providing a more thorough knowledge of the nature and social effects of the economic environment, one is forced to the opinion that the unsettled state in which economic theory finds itself arises, not merely out of the complexity of the facts with which it deals- though this no doubt adds to the confusion-but more particularly out of the confused currents of thought which prevail in the modern world at large.
Of one thing at least I am certain: whatever we may think of the present state of ’economic knowledge, whatever interpretation MAY we may put upon the fairly well attested fact that in certain circumstances it has proved to have practical utility, the nature of contemporary problems is such that they are not going to be solved satisfactorily without a good deal of economic reasoning.
The purpose of this paper is not to attempt to predict the place in the history of economic thought which it will eventually occupy but rather to point out some of the fields in which its effects are already obvious and important.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
G. A. Elliott
0.845
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1920-1939
Sentence
Title
Year
Journal
Authors
Centroid Similarity
THE object of this essay 1 is not to make any original contribution to knowledge, but to bring together as it were into one picture a number of phenomena which meet with individual discussion in the accepted expositions of economic theory, but whose interconnection is not always made sufficiently plain, and whose accumulated importance is perhaps greater than used to be supposed.
If it be a false goal to seek to excogitate a body of theory from a single principle, in terms of which all economic phenomena are to be explained, it is inadequate and altogether unsatisfactory to seek to interpret a body of obviously related phenomena in terms of separate and unrelated hypotheses.
Frank W. Taussig , Frederick C. Mills, F. B. Garver , Frank H. Knight , R. W. Souter , Lewis L. Lorwin , Mordecai Ezekiel
0.877
Economic theory must isolate the ideal tendencies with which it can deal most readily; but no practical conclusions as to the real beneficence of the system can be drawn until the actual relative importance of the tendencies recognized by the general theory-which in endeavoring to explain always seems to justify-are measured in comparison with divergent tendencies and taken into account.
If economic theory is to be used in solving real problems it must be extended and and elaborated “so that it fits the actual conditions which one finds in economic; society, and so that it can be combined with the facts and phenomena and principles of the natural sciences and the other social sciences.”
Again and again in the history of economic thought, the apparent contradiction between different usages has come to be seen to rest not upon deficiencies of logic on the one side or the other, but upon differences of assumption concerning the problem to be solved.
In brief, I would suggest that, although there is much in current theory which furnishes material assistance in such a study of economic processes, the doctrines of classical and mathematical theory are inadequate to our present needs.
Frank W. Taussig , Frederick C. Mills, F. B. Garver , Frank H. Knight , R. W. Souter , Lewis L. Lorwin , Mordecai Ezekiel
0.851
They will thus emphasize the continuity of economic thought, the persistent search for real laws, the supremacy of sensationalistic psychology in methodological questions, and the abstract nature of the generalizations reached on the basis of the theory of an “economic man.”
Since there exists such unanimity of opinion that economists may best be occupied during the present generation in providing a more thorough knowledge of the nature and social effects of the economic environment, one is forced to the opinion that the unsettled state in which economic theory finds itself arises, not merely out of the complexity of the facts with which it deals- though this no doubt adds to the confusion-but more particularly out of the confused currents of thought which prevail in the modern world at large.
A proposition of economic theory may, first, be practical for the economic theorist qua theorist, in that it enables him to find neater formulations for old propositions or even to deduce additional new propositions which fit nicely into the accepted conceptual scheme; it may, second, be practical for the economic analyst as observer of concrete situations, in that it aids him in understanding and ex- plaining what is going on in the real world at a particular place arid a particular time; it may, third, be practical for the political economist as government official, in that it helps him to design plans for controlling what is going on; it may, fourth, be practical for the business-man, in that it assists him in shaping a more successful business policy of a firm, in making better forecasts, or in improving internal management.
Let us suppose there were a recognized body of economic doctrine the truth and relevancy of which perpetually revealed itself to all who looked below the surface, which taught men what to expect and how to analyze their experience; which insisted at every turn on the illuminating relation between our conduct in life and our conduct in business; which drove the analysis of our daily administration of our individual resources deeper, and thereby dissipated the mist that hangs about our economic relations, and concentrated attention upon the uniting and all-penetrating principles of our study.
If one attempts to unite all, or a large group of economic factors, into a single system of explanation, the judgment on what is “important” and “realistic” must, of course, be different from what it will be when some specific economic factor is considered from a narrow angle.
Economic theory requires, nay necessarily is, generalization; but fruitful abstraction, to be valid and not merely logical, must meet certain tests of specificity.’
Of one thing at least I am certain: whatever we may think of the present state of ’economic knowledge, whatever interpretation MAY we may put upon the fairly well attested fact that in certain circumstances it has proved to have practical utility, the nature of contemporary problems is such that they are not going to be solved satisfactorily without a good deal of economic reasoning.
The purpose of this paper is not to attempt to predict the place in the history of economic thought which it will eventually occupy but rather to point out some of the fields in which its effects are already obvious and important.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
G. A. Elliott
0.845
generalizations which were once useful and meritorious as first attempts to discover causes and sequence among economic phenomena, but which have long since ceased to afford either light or fruit, and become part of the solemn humbug of ‘economic orthodoxy.’
This review will have to cover ground which is quite familiar to economists; it is not so well known to other social scientists, however, and it is necessary to have some conception of the development and the present status of economic theory to understand what these recent developments mean and just where they fit into economic analysis.
Wherefore it will be reasoned that economic theory, if too narrowly defined, cannot, however useful and precise it may be within the limits set by its definition, yield an adequate picture or explanation of the socio-economic world about us.
if, instead of attempting to derive the nature of Economic Generalizations from the pure categories of our subject-matter, we commence by examining a typical specimen.
The cluster gathers 4299 sentences from our corpus. It represents 2.65% of all the sentences selected over the whole period.
The community exists from 1940 to 1989.
The most recurring authors are Robert J. Gordon (35 sentences), William Fellner (33 sentences), E. G. Nourse (19 sentences), Fritz Machlup (17 sentences), Joe S. Bain (17 sentences), Joseph E. Stiglitz (17 sentences), Paul A. Samuelson (17 sentences), William J. Baumol (17 sentences), F. H. Hahn (16 sentences), E. J. Mishan (15 sentences).
The most recurring journals are The American Economic Review (538 sentences), Journal of Political Economy (255 sentences), The Quarterly Journal of Economics (254 sentences), The Economic Journal (233 sentences), Econometrica (178 sentences).
Top TF-IDF terms describing the community
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TF-IDF
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Top TF-IDF terms describing the community for each time window
Top terms 1940-1949
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TF-IDF
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steel
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Top terms 1950-1959
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Top terms 1960-1969
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Top terms 1970-1979
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Top terms 1980-1989
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0.0009170
relative_prices
0.0008972
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
The rational expectations proposition that most prices in the economy will conform to the public’s expectations of demand and supply is contrary to a long-standing interpretation of prices as being unresponsive in the short run to changes in demand.
As a digression, we also point out that rational expectations models14 in which quantity is assumed to respond only to current perceived relative prices, presuppose that there is no period of production or adjustment cost.
We assume that agents’ expectations are rational, which in the context of our information set and in the absence of any further restrictions, identifies price expectations with the projection of future prices on current and lagged endogenous variables.
Not only does this argument suggest something about the necessity of replication for the existence of a rational expectations equilibrium, it also suggests something about the time path of prices through which the equilibrium will be attained.
Robert Forsythe , Thomas R. Palfrey, Charles R. Plott
0.778
If the preferences are ” rational,” ” the State must then determine whether the position is one of sufficient gravity to take the drastic measures of price control or socialization.”
However, the way price expectations are formed within their theory is consistent with rational expectations only under restrictive assumptions, and one purpose of this paper is to relax those assumptions.
Peter G. Helmberger, Robert D. Weaver , Kathleen T. Haygood
0.773
Since McCallum argues that rational expectations models can accommodate various kinds of price stickiness, it is desirable to clarify this issue in the debate.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1940-1949
Sentence
Title
Year
Journal
Authors
Centroid Similarity
If the preferences are ” rational,” ” the State must then determine whether the position is one of sufficient gravity to take the drastic measures of price control or socialization.”
The argument only indicates that we cannot coordinate economic facts by the rationality of pure economics; and it suggests that the price calculus should be understood as just one of the various devices of rational management.9 As far as the coordination of economic facts is concerned, it is clear that where there is no self-regulating economic system there can be no equilibrium in purely economic terms.
The rational conduct which it presupposes is often absent in businessmen, and it is particularly admitted that its force is weakest under the extreme conditions of either depressions or booms where other considerations often take precedence.28 Under this aspect, it is likely that the case for the effects of marginal costs on prices is overstated when one assumes unimpaired rational behavior on the part of those concerned.
This reasoning differs from that of organized society partly in that it considers future value in terms of the effect on market prices of the small segment of the supply which is controlled, consciously or unconsciously accepting the process of marginal utility valuation.
Neither do they encourage us to proceed as if all the relevant aspects of cost and satisfaction could be expressed in money units, that everything desirable but scarce could be given a price tag, everything undesirable but required, a cost tag, and finally that rational choice could be made on the basis of this system of prices alone., Moreover, nothing but the fiction of market economy permits the s’tudent of economic life to reduce the rationality of producers and consumers to that of buyers and sellers.
In fact, the problems of choice which arise in ordinary private and business life, even in a highly controlled society, are very numerous; though they are nothing like as numerous as the problems which might arise, if they were not settled decisively, by a subconscious appeal to the price criterion, without, so to speak, coming into court.
It may therefore be charged in a good many cases with selecting for definitive rationalization a much simpler sort of behavior than occurs in fact, or alternatively with rationalizing observed behavior in terms of an inadequate sample of the variables and environmental factors which condition price making.
This reasoning differs from that of organized society partly in that it considers future value in terms of the effect on market price of the small segment of the supply which is controlled, .
Pricing by custom, in this case, is a clear-cut atrophy of market motivations; it can properly be termed a decadent alternative to what economists once called rational behavior.
Not only, therefore, have we separated out of the chaos of causes the price-determining and the quantity-determining factors; in the price- determining factors themselves we have distinguished between those that operate from the results of the past and those that operate from the expectations of the future.
VII It is in many ways fortunate that the dispute about the indispensability of the price system for any rational calculation in a complex society is now no longer conducted entirely between camps holding different political views.
Consumers’ irrationalities and ignorance of what is good for them; wastes due to imperfections in competitive markets; external economies and diseconomies which necessitate a divergence between the private and social interest; the evils of unemployment; the difficulty of improving the distribution of income without interfering with the price systemthe realisation of all these phenomena has led some people to the view that the price mechanism is a snare and a delusion and that the quantitative planning of production and consumption by the State provides the answer to our economic discontents.
‘8 Milder forms of the hypothesis, on the other hand, are essentially a reiteration of J. M. Clark’s remark about the irrational pursuit of rationality:’” there may be a “zone of indeterminacy” within whose limits cost pushes can increase velocity and the price level.
He then goes on to argue that the pricing-rules which Mr. Andrews describes are, on certain assumptions, consistent with profit-maximisation; that Mr. Andrews in fact describes not an irrational ritual, but ” rational action for long-term profit-maximisation in industries possessing certain characteristics.”
If managers were allowed to pursue maximum profits, it is clear that their choices between alternative inputs of materials and output of commodities would be highly irrational in relation to the requirements of the economy-unless and until there is a major overhaul of the theory and practice of pricing.
The net profit arising out of such, a system would have, accordingly, a strong flavour of social irrationality; given the fundamental assumptions, prices would have no necessary normal relation to costs, and the incentives to restrict output would, the greater the competition in the industry, result in businesses being too small, and enabled to survive by profits which were higher than unrestricted competition would find necessary, and therefore greater than it was in the social interest to allow.
Rationality of pricing policy, as the economist has traditionally defined it, is suggested also in the divergences of actual company returns from their respective targets-above it for extended periods of time, where the market permits; below it where the market requires.
Furthermore, if the decision is one of detail it will have been decentralized in the first place, so that profitability will affect output more quickly.1 Another misunderstanding must always be guarded against when it is asserted that Soviet prices and outputs are in actual practice irrational.
It cannot, it would seem, be regarded, in this context, as anything but a somewhat fanciful possibility, but it is difficult to see how else, in a perfectly competitive economy, entrepreneurs would be entitled to entertain rational and certain expectations that all prices would stay the same.’
As is usual in such cases, the criticism of the classical conception of human nature has developed bit by bit and has seemed to apply to the details of price behavior: the excessive rationality which classical price theory has seemed to postulate, the hedonistic flavor of the traditional conception of wants, the teleological implications of the “invisible hand,” and all that sort of thing.
Thus the principal problem is not perceived, and the solution preferred-if we can speak of the solution to an unperceived problem-is mistaken.2 The arbitrariness of prices in general is stated quite openly by Soviet economists, who regard it as one of the advantages of ‘socialism’ over ‘capitalism’, in that it gives an extra degree of freedom.3 That this freedom is the freedom of the boat without-the compass is not, of course, perceived.
Mr. Farrell, if I understand him right, goes much further than I would in the direction of saying that the pricing- rules describe generally-and not only in particular cases-the most rational behaviour.
“One is that the problem of collective efficiency of private enterprise involves quantities and qualities, of which actual market prices are not the only measure, and, I would add, some of which command no market price at all under present conditions.
If it is possible to work out anything like a rational theory of the price of living, we must take account of the fact that in an ordinary market quantities will change when prices change-in particular, when relative prices change.
These are often contrasted with consumers’ preferences, and we are told that Soviet prices could be, or should be, rational in terms of planners’ preferences.
Just as a theory of price based on ordinal utility is logically more streamlined than one based on unneeded cardinal properties of utility, it might be argued, so too would a theory of price for which rationality assumptions are not required have been superior to one which does depend on such somewhat embarrassing pieces of baggage.
Before turning to the argument proper, it is worth restating the well-known fact that relative prices of most commodities in the centrally planned economies have been very far from “rational,” and this is admitted by them.
Instead, the planners’ preferences must be formulated on the basis of other economic and political considerations.49 By the test of market-clearing prices, Soviet state retail prices are rational at least in principle if not completely in practice, and collective-farm market prices surely are rational.
The relatively slight quantitative importance of the effects may afford a rational justification of these policies: by making careful allowance for these effects, a modest but useful saving in costs of production can be made, compared with less enlightened production planning, whereas the trouble required to estimate opportunity cost for individual increments of production is so great as to make it not worth while to vary prices in the light of these effects.
Case 6 Muth argues that if one assumes rational behavior on the part of producers, their informed guess of future price will be the same as that suggested by economic theory.8 He considers price to be a weighted linear combination of the disturbances affecting supply.
After allowing an entirely artificial price system to emerge from uncoordinated ad hoc decrees, shifting fiscal and administrative requirements, or simple historical accident, they are increasingly feeling the lack of rational economic criteria for investment choice, import policy, modernization measures, and similar decisions requiring some objective balancing of economic advantage against economic cost.
Much of the economic theory which has evolved since, up to and including the mathematical investigations of price systems, is concerned with the problem of rationalizing the combined and interdependent effects of a set of independent individual choices each based upon conflicting preferences.
If the former ideological obstacles to rational pricing have been eroded, the political difficulties have become much more important, and the sensitivity of this issue is well shown in the reluctance with which it is discussed.
On the contrary, given a rational world, economic agents make plans regarding relative prices; since the agent controls his own price, but not the price of other agents, he may still be disappointed ex post with relative prices, despite equality of ex ante and ex post nominal prices.
Deliberate price deviations, social preferences must be realized for stimulation and social policy purposes within a rational scope and to a rational extent.
Furthermore, one would like to consider only “rational expectations equilibria”: agents must not only know the prices that will prevail in the future; they must be able to indeed carry out, during the second period of their life, the plans they had formulated when they were young.
The models postulate further that expectations about the price level are “rational,” i.e., Ft1 Pt - Et ’s1 where t+1P* are the subjective expectations of the price level and EPt+1 is the mathematically optimum forecast of the price level at time t + 1 conditional on all that is known about the determination of prices.
We have seen how the idea that there existed an association between the rational allocation of resources and a price system was increasingly refined, purged of purely extraneous interpretations such as any necessary association with private ownership of property, and rigorously proved.
Where we have not been engaged simply in justifying the ways of the price system to man, we have been engaged in measuring the acts of man against the high standard of optimality established for us by that amazing marriage between protestant asceticism and catholic rationalism which goes by the name of economic theory.
CONCLUSION The preceding sections have attempted to establish the basic compatibility of sluggish price adjustments and the LSP, the most drastic conclusion of the rational expectations approach.
He argues very convincingly, both from a practical and a theoretical point of view, that these prices can form a rational basis for decisions with regard to a large amount of choices in the economy which are much more detailed than those that can be determined by the more formalized and centralized plan calculation.
The rational expectations proposition that most prices in the economy will conform to the public’s expectations of demand and supply is contrary to a long-standing interpretation of prices as being unresponsive in the short run to changes in demand.
As a digression, we also point out that rational expectations models14 in which quantity is assumed to respond only to current perceived relative prices, presuppose that there is no period of production or adjustment cost.
We assume that agents’ expectations are rational, which in the context of our information set and in the absence of any further restrictions, identifies price expectations with the projection of future prices on current and lagged endogenous variables.
Not only does this argument suggest something about the necessity of replication for the existence of a rational expectations equilibrium, it also suggests something about the time path of prices through which the equilibrium will be attained.
Robert Forsythe , Thomas R. Palfrey, Charles R. Plott
0.778
Closest sentences from the cluster’s centroid
Among the 250 closest sentences to the cluster’s centroid, 5.6% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It thus provides a rationale for an aspect of the pricing process that various authors in empirical work with the conventional neo-classical model have vaguely attempted to capture with partial adjustment mechanisms.
We are now becoming increasingly aware that the price mechanism is just one-although an exceedingly important one-of the means that humans can and do use to make rational decisions in the face of uncertainty and complexity.
Case 6 Muth argues that if one assumes rational behavior on the part of producers, their informed guess of future price will be the same as that suggested by economic theory.8 He considers price to be a weighted linear combination of the disturbances affecting supply.
A price theory which includes first direct empirical generalizations and second rationalization of these generalizations in terms of human motivation is a great deal more useful than one which begins only with the second half of this procedure.
He then goes on to argue that the pricing-rules which Mr. Andrews describes are, on certain assumptions, consistent with profit-maximisation; that Mr. Andrews in fact describes not an irrational ritual, but ” rational action for long-term profit-maximisation in industries possessing certain characteristics.”
The rational conduct which it presupposes is often absent in businessmen, and it is particularly admitted that its force is weakest under the extreme conditions of either depressions or booms where other considerations often take precedence.28 Under this aspect, it is likely that the case for the effects of marginal costs on prices is overstated when one assumes unimpaired rational behavior on the part of those concerned.
The argument only indicates that we cannot coordinate economic facts by the rationality of pure economics; and it suggests that the price calculus should be understood as just one of the various devices of rational management.9 As far as the coordination of economic facts is concerned, it is clear that where there is no self-regulating economic system there can be no equilibrium in purely economic terms.
ci Mills has criticized the adaptive expectations formulation on the grounds that the most rational estimate of future price is the equilibrium price.5 He therefore concludes that rational producers cannot be expected to form their estimates of future prices by using the adaptive expectations formulation since it will inevitably lead them to wrong results.
It is now generally accepted that while the USSR has not been particularly concerned with short-run divergences between price and costs, an effort has been made at discrete intervals to rationalize the price system so that prices reflect costs as nearly as possible.
Price policy shifts the focus of attention from the mechanistic and deterministic aspect of the price-making process to the volitional factor introduced by the rationalistic influence of the human participants in the process.
As is usual in such cases, the criticism of the classical conception of human nature has developed bit by bit and has seemed to apply to the details of price behavior: the excessive rationality which classical price theory has seemed to postulate, the hedonistic flavor of the traditional conception of wants, the teleological implications of the “invisible hand,” and all that sort of thing.
Not only, therefore, have we separated out of the chaos of causes the price-determining and the quantity-determining factors; in the price- determining factors themselves we have distinguished between those that operate from the results of the past and those that operate from the expectations of the future.
It is perhaps hardly to be expected that a schedule of administered prices should reveal the flexibility and subtlety of prices which are the spontaneous outcome of competitive market force I49 At this stage of the argument it needs to be explained once again that a good deal of this is based on surmise.
More precisely put, the way producers form their expectations of what price will prevail in the * Any views expressed in this paper are those of the author.
The reader is here confronted,with a priori arguments that have no foundation in any explicitly formulated price theory, and the discussion in this section is difficult to accept as it is.
Frequently also the impression is given that the “indeterminacy” of the price is an inadequacy of the theory while in fact it is a fundamental feature of social and economic organization.
“35 He gets quickly from a consideration of value to what he considers the more relevant”theory of prices,” and his book on principles has as its theme an insistence upon the need for a perfectly general theory of the determination of prices.
And I shall argue that the discrepancy between the two averages of price relatives is not the primary observation that had induced in so many persons the belief that the system had gotten out of order and required fixing; that it is in terms of other variable quantities that the primary observations had been made; that the suspicions and doubts that had been aroused by observations upon the behavior of these other variables are not born of ignorance but are intelligible doubts and suspicions; and that the emphasis upon the behavior of price relatives is placed later in the mental groping of persons, viz., in their contemplation of requisite conditions to be satisfied so that the other primary variables may behave acceptably.
It is important to free ourselves from the outset, from the assumptions of the rejected model of competitive price determination; they are misleading in that they suggest that perfect knowledge, whatever it means, is important for the attainment of equilibrium, so that the more widespread and certain is the knowledge of the equilibrium price, the more likely is it to be realized; and that, conversely, uncertainty and ignorance regarding it are likely to prevent its realization.
This attack on the normative implications of price theory has a good deal of substance, all the more so because these normative implications are often implied rather than merely expounded.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1940-1949
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Not only, therefore, have we separated out of the chaos of causes the price-determining and the quantity-determining factors; in the price- determining factors themselves we have distinguished between those that operate from the results of the past and those that operate from the expectations of the future.
This necessary agreement on price leads us to say that- price is set by the impersonal and automatic forces of the market place; but, for present purposes, the emphasis is on the fact that human beings in fact set price, and that competitive forces impose limits on the discretion they exercise.
Variants are possible; but the general conclusion of a tendency to drive prices below cost seems justified.5 The reason for this may be suggested by an abstract limiting case, which does not, however, accurately express the operation of actual cases.
There is a natural tendency on the part of some persons to minimize, if not completely overlook, prices with which they have little contact and to overestimate the importance of those prices which concern them most …. “Inherent in any objective concept of the general price level is the implication of a price system.
This theory in general points toward determinacy of prices, but under heroic assumptions as to large numbers of firms or small numbers, knowledge of objective demand curves, and sensitivity or indifference to reaction of rivals, about which the several exponents of the theory themselves have unresolved differences of view.
VI We must look at the price system as such a mechanism for communicating information if we want to understand its real function-a function which, of course, it fulfills less perfectly as prices grow more rigid.
The price-making process, besides being examined as to the deterministic elements of the situations in which the executive must function, requires examination also as to the personal, intellectual, and temperamental qualities which he injects into the production and pricing process to give it its ultimate and effective form.8 That this factor is to little or no extent amenable to quantification does not mean that it can safely be left out of our theories of price determination in present economic society.
’While the writer is a member of the staff of the Office of Price Administration, the views expressed in this paper are his own, and are in no sense an expression of the policy of that Offic The above is obviously not a full list of relevant asumptions; moreover, there are many possible combinations of assumptions.
It is perhaps hardly to be expected that a schedule of administered prices should reveal the flexibility and subtlety of prices which are the spontaneous outcome of competitive market force I49 At this stage of the argument it needs to be explained once again that a good deal of this is based on surmise.
“35 He gets quickly from a consideration of value to what he considers the more relevant”theory of prices,” and his book on principles has as its theme an insistence upon the need for a perfectly general theory of the determination of prices.
It is important to free ourselves from the outset, from the assumptions of the rejected model of competitive price determination; they are misleading in that they suggest that perfect knowledge, whatever it means, is important for the attainment of equilibrium, so that the more widespread and certain is the knowledge of the equilibrium price, the more likely is it to be realized; and that, conversely, uncertainty and ignorance regarding it are likely to prevent its realization.
The first has been an exaggerated and oversimplified insistence on the allocative function of prices and the consequences of its suspension by controls.2 That one cannot have control and a normally functioning price system is obvious.
May I venture to express some skepticism about the practical importance of this case which features so prominently in much of the literature on the subject ?1 The importance of long-run considerations must not, of course, be denied on the ground that prices are fixed only for ‘the short period’.
It seems that the requirements of the consumers, as expressed in the fluctuations of market prices, can be transmitted to production, not necessarily by the method of direct orders but by economic means; above all, through an appropriate policy of calculation’ prices, i.e.
NOTE-A further manuscript, “On the Dichotomy in the Theory of Price” by Yukichi Kurimura, relates to the present topic but was not received until after the above articles were completed.
All points devolve from the revised theory of price determination, with the first being an implication of it while the belaboring of increasing returns constitutes a revived scent in the old hunt for the social devil.
“7 Because of the position of this discussion in the sequence of his presentation, it is probable that many readers have not appreciated its significance.8 Moreover, its applicability to real situations is made somewhat difficult by the footnote on the same page, which sets forth conditions for competitive pricing that are much more rigorous than necessary.
More precisely put, the way producers form their expectations of what price will prevail in the * Any views expressed in this paper are those of the author.
And I shall argue that the discrepancy between the two averages of price relatives is not the primary observation that had induced in so many persons the belief that the system had gotten out of order and required fixing; that it is in terms of other variable quantities that the primary observations had been made; that the suspicions and doubts that had been aroused by observations upon the behavior of these other variables are not born of ignorance but are intelligible doubts and suspicions; and that the emphasis upon the behavior of price relatives is placed later in the mental groping of persons, viz., in their contemplation of requisite conditions to be satisfied so that the other primary variables may behave acceptably.
It has often been stated that in the present environment of administered prices there is less justification in associating changes in total demand with price-level changes than there is under the postulate of a competitively flexible price system.
Zeitschrift für Nationalökonomie / Journal of Economics
Walter P. Egle
0.824
The argument most worthy of attention Acta Oeconomica Academiae Scientiarum Hungaricae 7, is that the choice of some price system for comparison already introduces many subjective and tendentious factors into the computations.
In addition to stating a theoretical description for this case, I shall attempt to analyze its implications with respect to the consequent level of prices and with respect to the flexibility of prices.
It is not easy to decide whether on balance the institutions in our economy are such that a model featuring “market-clearing prices” or a model featuring “cost-plus prices” fits better the purposes of speculating about the over-all performance of the entire economy.
Since the mid-Nineteen Thirties so-called price theory has undergone significant alterations, one of the most important of which is that no longer do economists attach any moral significance to the words “price” and “equilibrium” when they are used alone.42 But Ayres refuses to accept this current interpretation.
If this belief is so widespread, it seems appropriate to consider as part of price analysis - particularly if any thought of prescription is involved - whether any circumstances exist in which market-determined pricing would work less smoothly than is indicated by the usual static equilibrium treatment of pure competition.
The reader is here confronted,with a priori arguments that have no foundation in any explicitly formulated price theory, and the discussion in this section is difficult to accept as it is.
Frequently also the impression is given that the “indeterminacy” of the price is an inadequacy of the theory while in fact it is a fundamental feature of social and economic organization.
This attack on the normative implications of price theory has a good deal of substance, all the more so because these normative implications are often implied rather than merely expounded.
The purpose here is not to detail the technicalities of a particular price-setting formula but rather to consider the general nature of some of the problems involved.
It is true that the laws of supply and demand immediately suggest themselves as a possible basis for a tendency to constancy, but this is a very different matter from simple constancy; indeed, introducing the price mechanism leads to an exceedingly complex analysis.
This statement must induce us to a thorough reconsideration of the theories of market, demand, supply and prices, but their elaboration cannot be done within the limits of this article.
It thus provides a rationale for an aspect of the pricing process that various authors in empirical work with the conventional neo-classical model have vaguely attempted to capture with partial adjustment mechanisms.
The cluster gathers 1920 sentences from our corpus. It represents 1.19% of all the sentences selected over the whole period.
The community exists from 1940 to 1969.
The most recurring authors are Fritz Machlup (36 sentences), G. B. Richardson (23 sentences), William J. Baumol (18 sentences), J. Fred Weston (16 sentences), Stephen Enke (16 sentences), Brian J. Loasby (13 sentences), G. F. Thirlby (13 sentences), J. M. Clark (13 sentences), P. W. S. Andrews (13 sentences), R. F. Harrod (13 sentences).
The most recurring journals are The American Economic Review (366 sentences), The Quarterly Journal of Economics (207 sentences), Journal of Political Economy (126 sentences), Oxford Economic Papers (125 sentences), The Economic Journal (122 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
businessman
0.0018407
profit_maximization
0.0014536
businessmen
0.0013081
entrepreneurial
0.0010431
entrepreneur
0.0010394
maximization
0.0009121
business_decisions
0.0008739
firms
0.0007995
business_behavior
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profit_maximisation
0.0007024
managerial
0.0006843
profit_maximizing
0.0006743
entrepreneurs
0.0006645
firm
0.0006348
enterprise
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enterprises
0.0005848
maximisation
0.0005578
corporation
0.0005099
maximizing
0.0005093
private_enterprise
0.0005039
Top TF-IDF terms describing the community for each time window
Top terms 1940-1949
Token
TF-IDF
business_behavior
0.0019482
entrepreneur
0.0017755
businessman
0.0017659
business_behaviour
0.0016220
entrepreneurial
0.0015314
businessmen
0.0012721
entrepreneurs
0.0012559
enterprise
0.0012044
business_enterprise
0.0011645
maximum_profits
0.0011490
monopoly_power
0.0011489
marginal_revenue
0.0010364
plant
0.0009361
monopolistic_competition
0.0008911
pure_competition
0.0008707
Top terms 1950-1959
Token
TF-IDF
businessman
0.0033815
business_behaviour
0.0025802
businessmen
0.0024592
business_decisions
0.0020182
entrepreneurial
0.0019520
profit_maximization
0.0017565
entrepreneur
0.0017510
entrepreneurs
0.0015213
profit_maximisation
0.0014527
private_enterprise
0.0014487
maximisation
0.0013762
maximum_profits
0.0013327
elite
0.0011850
enterprise_system
0.0011299
enterprise_economy
0.0010943
Top terms 1960-1969
Token
TF-IDF
profit_maximization
0.0024347
businessmen
0.0016950
businessman
0.0016668
enterprises
0.0015039
entrepreneurial
0.0014716
managerial
0.0014456
firms
0.0013580
firm
0.0012122
maximization
0.0012056
profit_maximizing
0.0010694
entrepreneur
0.0010170
entrepreneurs
0.0009954
enterprise
0.0009876
corporation
0.0009263
business_decisions
0.0008694
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
For businessmen the application of this kind of criterion can lead to behavior which entrepreneurs in other societies might regard as in conflict with “rational” calculations.
The apparent paradox to be faced is that the economic theory of the firm and the theory of administration attempt to deal with human behavior in situations in which that behavior is at least “intendedly” rational; while, at the same time, it can be shown that if we assume the global kinds of rationality of the classical theory the problems of internal structure of the firm or other organization largely disappear.8 The paradox vanishes, and the outlines of theory begin to emerge when we substitute for “economic man” or “administrative man” a choosing organism of limited knowledge and ability.
There is no adequate solution of the problem of defining “rational economic behavior” on the part of an individual when the very rationality of his actions depends on the probable behavior of other individuals: in the case of oligopoly, other sellers.
This is not to deny that a goodly portion of all business behavior may be non-rational, thoughtless, blindly repetitive, deliberately traditional, or mot’vated by extra-economic objectives.
Since this is consistent with the view that shareholders are rational in seeking to maximize their wealth, and that management rationally seeks objectives other than profit maximization, while any other interpretation assumes that at least one of these parties acts irrationally, one may conclude that there is substantial empirical evidence favouring abandonment of the time-honoured profit-maximization assumption.
It is pertinent, however, to remark that the assumption that entrepreneurs maximise their profits and consumers their utility is not usually taken to imply that the rational man must be well-grounded in the differential calculus.
The economist evolved a theory of how the rational businessman maximizes his profits; but this theory, however unassailable it may be logically, does not fit the facts of business practice very well.
Only when habit becomes an excessively poor guide, or when strong external pressure goads the entrepreneur, does a close examination of alternatives result in a conscious decision which might be measured by standards of “rationality.”
There is some parallel between the choice of the rationalistic versus the behavioristic views of the firm and the choice between optimization and “satisficing” in the attainment of goals.
It would seem that we ought to find a higher degree of rationality in the field of production since the entrepreneur often undertakes complicated economic calculations.
The attitude of these businessmen was increasingly ruled by the principle that, in the last analysis, rational economic behavior should consist in choosing from among available alternatives and should be ruled by assumptions as to probable conditions of markets.
Though the problem with which I want primarily to deal in this paper is the problem of a rational economic organization, I shall in its course be led again and again to point to its close connections with certain methodological questions.
The assumption that entrepreneurs choose the technique of production which maximizes R which is made at this stage of the argument may not be a bad approximation to actual decisions.
o With this qualification, it seems to us, the assumption of the “economic man” and the rationality of his conduct is typically correct, at least in so far as the behavior of the entrepreneur is concerned.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1940-1949
Sentence
Title
Year
Journal
Authors
Centroid Similarity
There is no adequate solution of the problem of defining “rational economic behavior” on the part of an individual when the very rationality of his actions depends on the probable behavior of other individuals: in the case of oligopoly, other sellers.
This is not to deny that a goodly portion of all business behavior may be non-rational, thoughtless, blindly repetitive, deliberately traditional, or mot’vated by extra-economic objectives.
Though the problem with which I want primarily to deal in this paper is the problem of a rational economic organization, I shall in its course be led again and again to point to its close connections with certain methodological questions.
o With this qualification, it seems to us, the assumption of the “economic man” and the rationality of his conduct is typically correct, at least in so far as the behavior of the entrepreneur is concerned.
We must frankly admit that in considering the relations of motive to policy, and especially in judging in what direction the springs of human action will drive the business executive facing the pricing and production problem, one economist’s, or one psychologist’s, guess is as good as another’s.
This is another facet of the basic variable: the rational spirit, which permeating so many spheres of life from the economic to the religiou.s and artistic produced the atmosphere favourable to the ” formal rationality ” of the entrepreneur. ”
These differences of profit rates provide in turn a toe hold for assumptions about rational behavior, the effect of which may be either to advance or retard the instabilities of technological origin.
Yet this need not happen: rationality of firms’ behavior is probably not a bad first approximation and can be well utilized in realistic analyses of the economy as a whole.
The assumption of economic rationality implies that management so chooses the values of the parameters over which it has control that income is a maximum, the values of all other parameters being taken as given.
If it were generally recognized, for example, that decisions which had to be taken often involved considerations other than those of the most immediate profits of a particular firm, the decisions which were made, even without governmental control or regulation, might be wiser.
Few of these postulates have a firm empirical basis; none has been deduced from the principle of rational behavior, i.e., of maximizing expected profits or utilities.3 With noncompetitive markets, further difficulties are added.
Similar in this respect to the theory of consumers’ choices, the theory of short-run producers’ behavior proceeds on the basis of a simple postulate of rationality.
The apparent paradox to be faced is that the economic theory of the firm and the theory of administration attempt to deal with human behavior in situations in which that behavior is at least “intendedly” rational; while, at the same time, it can be shown that if we assume the global kinds of rationality of the classical theory the problems of internal structure of the firm or other organization largely disappear.8 The paradox vanishes, and the outlines of theory begin to emerge when we substitute for “economic man” or “administrative man” a choosing organism of limited knowledge and ability.
It is pertinent, however, to remark that the assumption that entrepreneurs maximise their profits and consumers their utility is not usually taken to imply that the rational man must be well-grounded in the differential calculus.
The economist evolved a theory of how the rational businessman maximizes his profits; but this theory, however unassailable it may be logically, does not fit the facts of business practice very well.
Only when habit becomes an excessively poor guide, or when strong external pressure goads the entrepreneur, does a close examination of alternatives result in a conscious decision which might be measured by standards of “rationality.”
It would seem that we ought to find a higher degree of rationality in the field of production since the entrepreneur often undertakes complicated economic calculations.
The attitude of these businessmen was increasingly ruled by the principle that, in the last analysis, rational economic behavior should consist in choosing from among available alternatives and should be ruled by assumptions as to probable conditions of markets.
“PROFIT MAXIMIZATION” NOT A GUIDE TO ACTION Current economic analysis of economic behavior relies heavily on decisions made by rational units customarily assumed to be seeking perfectly optimal situations.
Once any one of these three conditions is invalidated, even if the others remain true, the traditional profit maximizing postulate can no longer be said to be the sole criterion of entrepreneurial rationality, even though it may still be the most important determinant of business behaviour.
Theoretical economic analysis commonly proceeds on the assumption that a business man, when acting rationally, enlarges his output to the point at which his net profits are maximised; but this assumption seems to be refuted by the common observation that the general run of business man is content to stop short of that point.
For businessmen the application of this kind of criterion can lead to behavior which entrepreneurs in other societies might regard as in conflict with “rational” calculations.
Since this is consistent with the view that shareholders are rational in seeking to maximize their wealth, and that management rationally seeks objectives other than profit maximization, while any other interpretation assumes that at least one of these parties acts irrationally, one may conclude that there is substantial empirical evidence favouring abandonment of the time-honoured profit-maximization assumption.
There is some parallel between the choice of the rationalistic versus the behavioristic views of the firm and the choice between optimization and “satisficing” in the attainment of goals.
The assumption that entrepreneurs choose the technique of production which maximizes R which is made at this stage of the argument may not be a bad approximation to actual decisions.
If, for example, the security and profit attached to loans to an impecunious aristocracy were more attractive than those attached to investment in an iron manufactory, he would be a curious sort of entrepreneur who, on rational grounds, chose the latter.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Barry E. Supple
0.714
And because, as a first approximation, money revenue is regarded as the entrepreneur’s single aim, this outcome would be 1 Robbins appears to switch to this view of rationality in giving an instance of inconsistency which can be shown up by economics: the inconsistency of wishing to satisfy consumers’ demands fully and at the same time wishing to impede the import of foreign goods by tariffs.
If the profit-maximizing assumption is to be accepted as reasonable, it is necessary to recognize the fact that we deal with profit-maximizing behavior in a world which offers more alternative courses of action and yet imposes far more constraints than can be summed up in a revenue and a cost curve.
In resorting to the notion of bounded rationality, we ally ourselves with Ross in his claim that economic arguments regarding a static limitation to firm size have not taken adequately into account the contributions which organization theory has made to this problem.
Among the 150 closest sentences to the cluster’s centroid, 10% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
One arises because of the convenient assumption of rational profit-maximizing behavior on the part of the theoretical entrepreneur and the disturbing fact that firms, as they are observed in the real world, do not appear to behave consistently in such a manner.
Theoretical economic analysis commonly proceeds on the assumption that a business man, when acting rationally, enlarges his output to the point at which his net profits are maximised; but this assumption seems to be refuted by the common observation that the general run of business man is content to stop short of that point.
The economist evolved a theory of how the rational businessman maximizes his profits; but this theory, however unassailable it may be logically, does not fit the facts of business practice very well.
First, I shall argue that it can be used to explain some types of business behaviour which have often been observed in practice but which are difficult to rationalise in terms of a profit maximisation objective.
Once any one of these three conditions is invalidated, even if the others remain true, the traditional profit maximizing postulate can no longer be said to be the sole criterion of entrepreneurial rationality, even though it may still be the most important determinant of business behaviour.
It is pertinent, however, to remark that the assumption that entrepreneurs maximise their profits and consumers their utility is not usually taken to imply that the rational man must be well-grounded in the differential calculus.
The apparent paradox to be faced is that the economic theory of the firm and the theory of administration attempt to deal with human behavior in situations in which that behavior is at least “intendedly” rational; while, at the same time, it can be shown that if we assume the global kinds of rationality of the classical theory the problems of internal structure of the firm or other organization largely disappear.8 The paradox vanishes, and the outlines of theory begin to emerge when we substitute for “economic man” or “administrative man” a choosing organism of limited knowledge and ability.
This paper is not concerned with the question, to which P. W. S. Andrews has directed his attention, whether the commended behaviour does indeed lead to maximum profits, even on its own assumptions.4 But it does need to be remembered, by those who extol the virtue of profit-maximizing behaviour, that such behaviour is rational only if the object is to make as much money as possible.
“’6”Whenever this determinant happens to lead to behaviour consistent with rational and informed maximization of returns, the business will prosper and acquire resources with which to expand; whenever it does not, the business will tend to lose resources and can be kept in existence only by the addition of resources from outside.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. A. Ashley
0.763
When we look more closely at their idea of the self-interest of entrepreneurs and capitalists we cannot fail to discover that the results it was supposed to produce are really not at all what one would expect from the rational self-interest of the detached individual or the childless couple who no longer look at the world through 21Price Theory, 69.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. A. Ashley
0.761
If one retains for a moment the usual assumptions about consistency, rationality, and knowledge, then the situation facing a firm at a particular time will determine an ideal level of achievement for each of its objectives, just as the situation facing a consumer will determine an ideal level of expendi- 17 Private communication.
Finally, business men may not be influenced solely by the profit motive-habit, altruism, pride, or other noneconomic factors may be important-and here the marginal theory gives us no guide whatever.20 But if we assume that business men are activated by the profit motive and are rational,21 then we have already assumed that they attempt-within the limits of their knowledge, inclination, and competence-to maximize profits, and the only method we have yet devised for showing how this can be done 18 Cf.
o With this qualification, it seems to us, the assumption of the “economic man” and the rationality of his conduct is typically correct, at least in so far as the behavior of the entrepreneur is concerned.
Top sentences (in general) of the cluster’s centroid
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Title
Year
Journal
Authors
Centroid Similarity
Next, it can be shown that certain specific theories predict policies which business men do not usually follow, and which, indeed, they are well advised not to follow if they wish to make a profit.3 This is essentially a matter of showing that the specific assumptions on which these theories are based are invalid, and, while it is useful to be able to discard false theories, it still leaves open the possibility of replacing these specific assumptions by more general ones which will be valid.
One arises because of the convenient assumption of rational profit-maximizing behavior on the part of the theoretical entrepreneur and the disturbing fact that firms, as they are observed in the real world, do not appear to behave consistently in such a manner.
Certain producers exhibit surprising nonchalance, or indifference, even to the point where they submit through mere fear of change to a routine which damages their interests.7 Very generally, in fact, the decisions of entrepreneurs are not the result of probability calculations, but are suggested by impressions, hopes, fears, and gambles on the future.8 Learned pages in economic treatises devoted to elaborating the minutiae of economic calculations appear much more like an ideal offered to businessmen than like a record of observations.
Theoretical economic analysis commonly proceeds on the assumption that a business man, when acting rationally, enlarges his output to the point at which his net profits are maximised; but this assumption seems to be refuted by the common observation that the general run of business man is content to stop short of that point.
Other writers have already put forward some of the propositions, even if only as possibilities, but the whole theory has been worked out independently in order to account for the business behaviour that I studied.
Mrs. Robinson’s “single assumption,” although often made by others, is extravagantly unrealistic; all that depends upon it is therefore useless for prediction, unless there are reasons for supposing that the theory yields reliable predictions for other reasons.7 The fundamental difficulty is that a desire to maximize profits does not provide the entrepreneur with an action prescription.
In criticisms of classical economic theory much has been made of the point that the motivations that govern business, whether or not we choose to classify them as “economic,” involve far more than a simple, forthright urge to make as much money as possible.
Economic theoiy is, after all, a tool of research and not a body of settled knowledge, and in no field is this more true than in the theory of the firm.
The assumption that entrepreneurs choose the technique of production which maximizes R which is made at this stage of the argument may not be a bad approximation to actual decisions.
If the profit-maximizing assumption is to be accepted as reasonable, it is necessary to recognize the fact that we deal with profit-maximizing behavior in a world which offers more alternative courses of action and yet imposes far more constraints than can be summed up in a revenue and a cost curve.
Or, to refer to the point raised by Krooss in 1958, what significance can be attached to scattered evidence that businessmen are motivated in their behavior by considerations other than to maximize profits?
Otto Nathan , O. E. Baker , James G. Evans, Alan R. Sweezy
0.802
The economist evolved a theory of how the rational businessman maximizes his profits; but this theory, however unassailable it may be logically, does not fit the facts of business practice very well.
For businessmen the application of this kind of criterion can lead to behavior which entrepreneurs in other societies might regard as in conflict with “rational” calculations.
Any action by the entrepreneur must be the result of the fact that his “subjective estimates, guesses and hunches” make that action “’Marginal analysis of the firm should not be understood to imply anything but subjective estimates, guesses and hunches.”
There are, 1 This article is an attempt to apply certain economic ideas and methods to a sphere of business jealously wrapped in the mystery of its technical obscurities.
There is the eternal possibility that an entrepreneur will make a right move in one direction and a wrong move in the other direction simultaneously or that he will make a right move in an environment such that his move is offset by exogenous factors and will come to completely wrong conclusions about the effects of various policies.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1940-1949
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Other writers have already put forward some of the propositions, even if only as possibilities, but the whole theory has been worked out independently in order to account for the business behaviour that I studied.
Otto Nathan , O. E. Baker , James G. Evans, Alan R. Sweezy
0.802
Any action by the entrepreneur must be the result of the fact that his “subjective estimates, guesses and hunches” make that action “’Marginal analysis of the firm should not be understood to imply anything but subjective estimates, guesses and hunches.”
If whatever a business man does is explained by the principle of profit maximization-because he does what he likes to do, and he likes to do what maximizes the sum of his pecuniary and non-pecuniary profits-the analysis acquires the character of a system of definitions and tautologies, and loses much of its value as an explanation of reality.
In certain areas of economic thought it is beginning to be believed that the profit-maximization assumption has outlived its usefulness; and, needless to say, the writer is sympathetic toward that view.
“A business man deciding whether it is worth his while to sink more capital into his business will be influenced by a very wide range of considerations: whether his market is likely to grow or decline; what his competitors are doing; whether prices are likely to go up or down; whether the latest type of machinery is much superior to his own, and so on.
As I pointed out near the beginning of the paper, this is a case of somewhat limited applicability, in which the entrepreneur might find himself “resting precariously on the judgment of his competitors.”
We must frankly admit that in considering the relations of motive to policy, and especially in judging in what direction the springs of human action will drive the business executive facing the pricing and production problem, one economist’s, or one psychologist’s, guess is as good as another’s.
I find it hard to; interpret the limitations of the definition; it seems to stretch to the horizon; it includes the personal shortcomings and stubbornness of the businessman; it embraces all the restraints imposed by government and by the nature of the capitalist system in general as well as by the peculiarities of the particular business in which the businessman is engaged; culture patterns and culture traits are involved; and surely it should also include the rigorous operation of the economic laws of marginal cost, productivity, and utility, of diminishing returns, of competition-pure or impure- which the businessman cannot know unless he neglects his business and devotes his waking hours to reading the publications of the Cambridge school of economists.
One may presume that producing larger production volumes, paying higher wage rates, or charging lower product prices than would be compatible with a maximum of money profits may involve for the business man a gain in social prestige or a certain measure of inner satisfaction.10 It is not impossible that considerations of this sort substantially weaken the forces believed to be at work on the basis of a strictly pecuniary marginal calculus.
Next, it can be shown that certain specific theories predict policies which business men do not usually follow, and which, indeed, they are well advised not to follow if they wish to make a profit.3 This is essentially a matter of showing that the specific assumptions on which these theories are based are invalid, and, while it is useful to be able to discard false theories, it still leaves open the possibility of replacing these specific assumptions by more general ones which will be valid.
Certain producers exhibit surprising nonchalance, or indifference, even to the point where they submit through mere fear of change to a routine which damages their interests.7 Very generally, in fact, the decisions of entrepreneurs are not the result of probability calculations, but are suggested by impressions, hopes, fears, and gambles on the future.8 Learned pages in economic treatises devoted to elaborating the minutiae of economic calculations appear much more like an ideal offered to businessmen than like a record of observations.
Theoretical economic analysis commonly proceeds on the assumption that a business man, when acting rationally, enlarges his output to the point at which his net profits are maximised; but this assumption seems to be refuted by the common observation that the general run of business man is content to stop short of that point.
Mrs. Robinson’s “single assumption,” although often made by others, is extravagantly unrealistic; all that depends upon it is therefore useless for prediction, unless there are reasons for supposing that the theory yields reliable predictions for other reasons.7 The fundamental difficulty is that a desire to maximize profits does not provide the entrepreneur with an action prescription.
In criticisms of classical economic theory much has been made of the point that the motivations that govern business, whether or not we choose to classify them as “economic,” involve far more than a simple, forthright urge to make as much money as possible.
Economic theoiy is, after all, a tool of research and not a body of settled knowledge, and in no field is this more true than in the theory of the firm.
The economist evolved a theory of how the rational businessman maximizes his profits; but this theory, however unassailable it may be logically, does not fit the facts of business practice very well.
There are, 1 This article is an attempt to apply certain economic ideas and methods to a sphere of business jealously wrapped in the mystery of its technical obscurities.
It has been evident for a considerable time that the crudely simplified model of the behavior of the firm, in which the individual entrepreneur maximizes a well defined short-term or even long-term revenue function, is of highly limited use in explaining the functioning of firms in our economy.
It has occurred to some authors that a firm is a grouping of interests and that its decisions do not necessarily reflect any single objective, whether it be maximum profits, maximum earnings to management, or maximum wages.
One arises because of the convenient assumption of rational profit-maximizing behavior on the part of the theoretical entrepreneur and the disturbing fact that firms, as they are observed in the real world, do not appear to behave consistently in such a manner.
The assumption that entrepreneurs choose the technique of production which maximizes R which is made at this stage of the argument may not be a bad approximation to actual decisions.
If the profit-maximizing assumption is to be accepted as reasonable, it is necessary to recognize the fact that we deal with profit-maximizing behavior in a world which offers more alternative courses of action and yet imposes far more constraints than can be summed up in a revenue and a cost curve.
Or, to refer to the point raised by Krooss in 1958, what significance can be attached to scattered evidence that businessmen are motivated in their behavior by considerations other than to maximize profits?
For businessmen the application of this kind of criterion can lead to behavior which entrepreneurs in other societies might regard as in conflict with “rational” calculations.
There is the eternal possibility that an entrepreneur will make a right move in one direction and a wrong move in the other direction simultaneously or that he will make a right move in an environment such that his move is offset by exogenous factors and will come to completely wrong conclusions about the effects of various policies.
When profit maximization is taken as an attribute of the firm but not the businessman, and when the firm’s costs are seen to include the supply price of the entrepreneur, most of the confusion over the profit maximization assumption disappears.
There is adequate justification for the historians’ complaints about the entrepreneur concept in economic theory.4 It is a simple matter to demonstrate, at least in static equilibrium terms, that consideration must be given to other objectives when the firm is assumed to seek a satisfactory level of profits, provided that level is below the maximum.
Similarly, business policies such as target-return pricing,1 sales maximization,2 and full-cost pricing3 are evidence, not so much of the businessman’s failure to maximize profits, as of his need for operating rules which can be easily applied, especially under conditions of incomplete knowledge.4 It is important to note that the concept of profit maximization has not thereby been stretched, in Robertson’s words, ‘so far as to cover all the possible motives which may animate business men, thereby robbing the proposition that business men normally pursue profit of all empirical content, since profit has now become whatever the business man pursues’.5 It is true that, for the individual proprietor, profit maximization accompanies utility maximization.
V. IMPLICATIONS FOR THE THEORY OF THE FIRM We have noted two arguments in support of throwing profits maximization onto the same scrap pile of obsolete tools where the owner-entrepreneur now rests in order to develop a realistic theory of managerial enterprise.
The cluster gathers 647 sentences from our corpus. It represents 0.4% of all the sentences selected over the whole period.
The community exists from 1940 to 1949.
The most recurring authors are Frank H. Knight (23 sentences), David McCord Wright (22 sentences), Joseph J. Spengler (17 sentences), G. L. S. Shackle (14 sentences), James J. O’Leary (10 sentences), Milton Friedman (10 sentences), Herbert A. Simon (9 sentences), Simon Kuznets (8 sentences), Robert L. Bishop (7 sentences), A. B. Wolfe (6 sentences).
The most recurring journals are The American Economic Review (103 sentences), The Quarterly Journal of Economics (80 sentences), Journal of Political Economy (79 sentences), Economica (70 sentences), The Review of Economic Studies (46 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
physiocratic
0.0010299
liquidity_preference
0.0005630
conservation
0.0005603
investment
0.0005499
stagnation
0.0005313
liquidity
0.0004841
purchasing_power
0.0004418
professor_hayek
0.0004348
public_investment
0.0004130
raw_materials
0.0003988
innumerable
0.0003795
knight
0.0003647
rationing
0.0003556
effective_demand
0.0003550
consumer_behavior
0.0003527
consumers
0.0003471
intact
0.0003437
consume
0.0003434
invested
0.0003374
market_valuations
0.0003261
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
It is only after the institutional framework has been constructed that the “rationality” of consumers’ behavior in the market has any meaning in economic theory-and the “rationality” of an administrator in implementing a social value scale through public expenditures would appear to have exactly the same meaning.
What a perfectly rational individual would do, under any given terms of choice between present and future, is merely the problem of defining perfect rationality, and close agreement on this speculative question is not to be expected.1 We know that if men had not postponed in the past some consumption which they might have had they would never have ” accumulated ” at all, which is to say they would never have progressed, and could hardly have become human in the first place, so dependent is progress upon the accumulation of means in some form.
For example, the concept of ” scarcity” hardly offers a sufficient common basis for distinguishing economic acts from other acts, for the idea of scarcity which leads to the behaviour may be the outcome of an urge, desire, want or motive and there is no reason to believe that the act arising from one of these as constitutive idea need necessarily be ” economic” or ” social “.
It is these factors which make it seem necessary to abandon the assumption of rational behavior of the individual consumer and with it the theoretical and practical conclusions which economic theory has deduced from it.
III Passing from these negative considerations - the elements of non-rationality and compulsion in any revenue-expenditure process - the process whereby the collective demand schedule is rationally implemented may be briefly considered.
III The question at issue is whether collective interferences can be analyzed in terms of the general theory of value, or, more particularly, whether the necessary conditions for rational consumers’ choice can be met in instances of government intervention.9 The indispensable requirement for rational consumers’ choice and its necessary consequence, the maximum of satisfaction for consumers as a whole consistent with the resources available, is that the terms on which alternatives are offered must be known.’
“63 One cannot disagree with this statement any more than with the statement that the price of butter measures the marginal utility of butter to each member of the community.64 Both statements are either tautologies or definitions of rational behavior.
But though few, if any, would presume to have the comprehensive grasp of facts and the ingenuity to marshall and weigh those facts which would enable them to compose all the conflicts of interest and determine precisely the optimum adjustment of supply and demand in respect of even a single raw material, there are still fewer of us who, in observing the course of events and in the practical conduct of our affairs, do not form judgments based upon a conception of just such an optimum.
The balance here presents special complications, but, if we assume rational behavior, some “economic” value must be assumed as a balancing item against every cost, and vice versa.
All that we are required to assume for the purposes of a theory which will be abstractly realistic in all essential respects is that resources of various kinds, perishable and re- duplicable in varying degree, are rationally used, under such technical conditions as prevail in the contemporary civilized world, to create some plurality of values, which are realized in greater degree as more resources are employed and as they are more effectively apportioned and combined.
In general, the highly technical character of money-making enables us to be far more rational in carrying on that process than we can be in spending money to satisfy competing desires, which we cannot reduce to a common denominator.
A rational arrangement of our affairs would require that at such times production is in some measure switched from things of more restricted usefulness to the kind of things which will be needed in all conditions, such as the most widely used raw materials.
It is clear that if the consumer is not allowed to obtain at the marginal cost additional units of products, produced under conditions of decreasing average costs, he is not being allowed to choose in a rational manner between spending his money on consuming additional units of the product and spending his money in some other way, since the amount which he would be called upon to spend to obtain additional units of the product would not reflect the value of the factors in another use or to another user.
It is seen from this derivation that the hypothesis, “people don’t change their purchases if incomes and all prices rise in the same proportion,” while implied in the requirement of “maximum satisfaction,” does not, in turn, itself imply that requirement; the hypothesis is a weaker description of rational behavior.
Among the 50 closest sentences to the cluster’s centroid, 10% mention the terms ‘rational’ or ‘rationality’
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It is clear that if the consumer is not allowed to obtain at the marginal cost additional units of products, produced under conditions of decreasing average costs, he is not being allowed to choose in a rational manner between spending his money on consuming additional units of the product and spending his money in some other way, since the amount which he would be called upon to spend to obtain additional units of the product would not reflect the value of the factors in another use or to another user.
That this as- 10 This elemental argument seems so clearly to justify diminishing marginal utility that it may be desirable even now to state explicitly how this phenomenon can be rationalized equally well on the assumption of increasing marginal utility of money.
It is seen from this derivation that the hypothesis, “people don’t change their purchases if incomes and all prices rise in the same proportion,” while implied in the requirement of “maximum satisfaction,” does not, in turn, itself imply that requirement; the hypothesis is a weaker description of rational behavior.
All that we are required to assume for the purposes of a theory which will be abstractly realistic in all essential respects is that resources of various kinds, perishable and re- duplicable in varying degree, are rationally used, under such technical conditions as prevail in the contemporary civilized world, to create some plurality of values, which are realized in greater degree as more resources are employed and as they are more effectively apportioned and combined.
The balance here presents special complications, but, if we assume rational behavior, some “economic” value must be assumed as a balancing item against every cost, and vice versa.
Top sentences (in general) of the cluster’s centroid
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It is clear that if the consumer is not allowed to obtain at the marginal cost additional units of products, produced under conditions of decreasing average costs, he is not being allowed to choose in a rational manner between spending his money on consuming additional units of the product and spending his money in some other way, since the amount which he would be called upon to spend to obtain additional units of the product would not reflect the value of the factors in another use or to another user.
It is my purpose, rather, to describe in some detail the physiocratic theory of consumption or expenditure and to indicate how this theory, together with the associated theory of production, both anticipated and contributed to the formulation of the Say-Mill “Law of Markets.”
405-406. would be invested, Ricardo contended that saving would occasion as great an “effectual demand” for commodities as consumption would.27 He agreed with Say that money is merely a lubricant in the process of exchange, and that, fundamentally, goods trade for goods.28 Although too much of any one particular commodity might be produced in relation to the demand for it, this could never be true for all commodities because one half of the goods in the market provides the demand for the other half.29 There could be only one case, and that would be temporary, in which the accumulation of capital could coincide with a low price of food and might be attended with a fall of profits.
If any force interferes to prevent the free movement of the lever, to prevent its obeying the impulse received from net cost of production, the power fails to produce its proper effect, and value diverges from its natural course ” Next Houston abandons the ” equal utility ” assumption and considers how the value of commodities will be affected by their comparative utility when taken together with the possibilities of varying the supply, concluding:- “To sum up, when commodities, the subject of -exchange, require some time before a new supply can be procured, scarcity, actual or apprehended, will give rise to a deviation from natural value, greater or less in proportion to their utility, or, in other words, in proportion to the imperiousness of the desire they are adapted to satisfy.
It is clear that certain individuals or classes will derive some benefit as a result of the improvements which allow them to realise economies in the purchase of certain goods; but if these economies are used to increase the sterile stock of disposable funds, the social gain will not be great.
It is simply that in the greater part of this article I shall be trying to show a technical or physical limit to the use of capital, rather than to demonstrate psychological limits upon accumulation.
In this manner an old idea, divorced from all hedonistic implications, is restated in terms of supply and demand concepts which have been specifically enlarged and renovated, and is developed as far as possible on a purely objective basis.
There is no sense in a decline in production from present levels, though production like investment has its limits, and eventually technical improvements will be taken out increasingly in leisure.7 The great problem of the modern age, therefore, is how, 6This argument assumes that the price-income level adjusts itself to the quantity of money and the liquidity preference function; i.e., that any change in the price level is the result of changes in the monetary situation.
For example, the concept of ” scarcity” hardly offers a sufficient common basis for distinguishing economic acts from other acts, for the idea of scarcity which leads to the behaviour may be the outcome of an urge, desire, want or motive and there is no reason to believe that the act arising from one of these as constitutive idea need necessarily be ” economic” or ” social “.
As Terborgh shows, the whole decision depends upon which assumptions are accepted.27 The writer, like Terborgh, does not dispute that we should stand ready to make up deficiencies in effective demand.28 Like Ter- borgh he also agrees that the system left alone does not function smoothly.29 But let us see whether there is overwhelming evidence that the system on average cannot in future invest its ex ante savings.
Let us suppose, for instance, that there is a persistent tendency in the system for production to outrun consumption by an amount greater than the preferred rate of investment.
For the potentialities of the Consumers’ Surplus technique are so large, both in the exposition and in the future development of economic theory, that anything which can be done to firm in its foundations seems well worth doing.
In present circumstances the problems of pure theory can only, at the best, receive very intermittent attention ; I must, therefore, beg pardon of my readers if my studies in Consumers’ Surplus’ are becoming something of a serial.
Thus there occurs a scarcity of disposable funds, which I ” We shall later examine cases in which this is not so, but in practice there can be long periods without variation, and for methodological reasons it is convenient to consider this case first.”
The cluster gathers 407 sentences from our corpus. It represents 0.25% of all the sentences selected over the whole period.
The community exists from 1940 to 1949.
The most recurring authors are Frank H. Knight (10 sentences), Allan G. B. Fisher (8 sentences), David McCord Wright (8 sentences), Franz Oppenheimer (8 sentences), A. Zauberman (7 sentences), Edward A. Shils (7 sentences), Ira O. Scott, Jr. (7 sentences), Raya Dunayevskaya (7 sentences), Dudley Dillard (6 sentences), F. A. v. Hayek (6 sentences).
The most recurring journals are The American Economic Review (84 sentences), Journal of Political Economy (52 sentences), The Quarterly Journal of Economics (41 sentences), Economica (39 sentences), The Economic Journal (32 sentences).
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TF-IDF
capitalism
0.0015268
marx
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capitalistic
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laborers
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socialist_economy
0.0004333
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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But wage-earners, after all, form a large part of the consuming public; if it is realistic to believe that they have “non-rational money wage demands,” surely it is just as realistic to believe that they are equally non-rational in their consumption decisions.
Not only are the subjects of all economic activity in capitalism, as well as in socialism, men,7 and the object of their economic efforts the control over resources of nature, but both systems also have to function within a circumscribed framework of rationality and determinateness.
Firstly, I propose to discuss the general assumption, implicit in Professor Lange’s analysis, regarding the substitutability among factors of production.2 The second set of considerations is related to the element of irrationality which is contained in human behaviour.
This unsound assumption permeates our whole culture, and in the industrial world it takes the form of believing that workers behave rationally or can be made to behave rationally in response to the proper economic incentives.
1 ” The fanatical faith of the working classes in the artificial mechanisms of combination will give place to trust in the wiser, because more natural, system of individual competition … the Heaven-ordained laws of Supply and Demand.”
Just as the modern industrial system rests on a prodigious “rationalistic” foundation of calculation-profit and loss, cost and price, etc., which is common to both capitalist enterprise and socialist planning-so the new politics rests on what one might describe as the rationalized mathematics of collectivized individualism.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
H. McD. Clokie
0.689
IV AN INTELLIGENT APPROACH to a comprehension of our economic system, to an appreciation of its shortcomings and to a correlative understanding of what specific changes or controls or reforms would make it operate to better advantage, is not so naive as that of the Communist and Socialist theorizers.
“But if wage-earners are victims of a ‘money illusion’ when they act as sellers of labor, why should they be expected to become ‘rational’ when they come into the market as consumers?”
The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighborhood, be either perfectlv equal or continually tending to eaualitr.12 12 “It is hopeless that we should have ere long an exposition of economic principles drawn up in quantitative formulas.”
Some reason is required as to why it continues to show no sign of wavering in its attachment to a doctrine which, in its accepted ossified version, is not only unwieldy as the theoretical basis for interpreting the working principles of economics, but is demonstrably a real handicap to the policy of the Soviet economic bureaucracy ?
12 From the point of view of a theory which denies the applicability of any “laws” to the socialist economy all decisions are purely arbitrary, and neither cost accounting nor principles of rational allocation olf resources have any meaning.
The major real issues of economic policy undoubtedly lie deep in this area of prior causality, rather than in immediate economic relations, between individuals taken as “given” with respect to their wants and “productive capacity.”
And if one accepts this qualitative statement as correct, one must surely regard it as sufficiently fundamental to affect the whole shape of economic events and their movement and to determine the mechanisms that economic theory is to treat as being of central significance; for example, the Marxian emphasis on the profit rate as being the crucial governor of expansion and contraction of the system or on the role played by the “industrial reserve army” as an essential prop to a specifically capitalist “mode of production.”
Seen in this perspective, collective bargaining, far from being beyond the scope of economic theory, is a constant challenge to the economist to explore more fully the interaction of rational and irrational forces in the market.
It is seen that these will not be mere corrections or amplifications of current economic doctrines … the point of view is here no longer that of a bargain between individuals in given social conditions, but the life and movement of whole industries and classes, of the creation and modification of social mechanism.
Among the 50 closest sentences to the cluster’s centroid, 2% mention the terms ‘rational’ or ‘rationality’
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Not only are the subjects of all economic activity in capitalism, as well as in socialism, men,7 and the object of their economic efforts the control over resources of nature, but both systems also have to function within a circumscribed framework of rationality and determinateness.
Top sentences (in general) of the cluster’s centroid
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It is seen that these will not be mere corrections or amplifications of current economic doctrines … the point of view is here no longer that of a bargain between individuals in given social conditions, but the life and movement of whole industries and classes, of the creation and modification of social mechanism.
And if one accepts this qualitative statement as correct, one must surely regard it as sufficiently fundamental to affect the whole shape of economic events and their movement and to determine the mechanisms that economic theory is to treat as being of central significance; for example, the Marxian emphasis on the profit rate as being the crucial governor of expansion and contraction of the system or on the role played by the “industrial reserve army” as an essential prop to a specifically capitalist “mode of production.”
This proposal does not rest on any abstract theory that labor is the sole creative factor but rather on the basic assumption that income which goes to workers helps to preserve prosperity, while that which goes to owners tends to clog up the machinery and cause depressions.
The argument may be summarised as follows: the demand for labour to produce commodities being determined by the size of the fund set aside by capitalists for the payment of wages, the purchase 1 The converse is also possible: a proposition of one theoretical system may appear sensible in another, and yet be unnecessary and needlessly complicating in the latter system.
1 ” The fanatical faith of the working classes in the artificial mechanisms of combination will give place to trust in the wiser, because more natural, system of individual competition … the Heaven-ordained laws of Supply and Demand.”
And after recognizing that the problem which this process of modern society offers to the thinker should be resolved by political economy, he traces it clearly and concretely to its fundamentals, as had never before been done by any treatise on sociology: The cause which produces want in the midst of plenty is, evidently, that which manifests itself in the tendency of wages to a minimum, a law recognized everywhere.
He thinks that in recent years economists have been too ready to rest content with mere criticism of the restrictionist devices commonly adopted for protecting established expectations and thus assuring security, the fixation of minimum prices or maximum outputs or the limitation of recruitment, and have too seldom carried their destructive analysis the necessary further stage, which would show what actually ought to be done about it, to replace these self-frustrating devices, which not only destroy productive power, but also destroy the social security which it is their avowed object to ensure, by something better.
The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighborhood, be either perfectlv equal or continually tending to eaualitr.12 12 “It is hopeless that we should have ere long an exposition of economic principles drawn up in quantitative formulas.”
We may thus conclude that, where there are scarce resources, no monetary device will overcome the consequences of the simple fact that the economy as a whole cannot have its cake and eat i Before concluding this section we may add a few remarks about the consequences to which our theory leads as to wages and wage policies.
It is not surprising that those who completely reject it seem at the same time to be unable to attach any meaning to the conception of a given and limited supply of real capital6: because it is through this effect that 1 E.g., G. v. Schulze-Gaeveriiitz,D er Grossbetrieb, 1892; J. Schcenhof, The Econiomiy of High Wages, 1893, PP.
This equilibrium, he continues, is constantly upset, but there is “an a posteriori, nature imposed necessity controlling the lawless caprice of the producers” by the enduring work of value and competition.2 However, the law of labor-value presiding over the pages of Capital, Volume I, asserts itself merely as a norm.
Therefore the only basis on which a working economy can be organized is either the valu tions of the market, with its well-known biases and blind spots, or the outcome of irresponsible political pressures, with their equally well-known tendencies toward sacrificing the good of the whole to the temporary or apparent selfish interests of organized groups.
Thus a sizable “exogenous” literature has accumulated, in which may be included the Methodenslreit led by Menger and Schmoller; the “original accumulation” issue; the controversies among the Marxists, Austrians, Fabians, and Revisionists from about 1890 to about 1920; and the running disputes on economic psychology, control, rigid prices, and the like between the institutionalists and the maximizationists in the United States from about 1900 onward.5 But this critical literature is not quite the same thing as intercommunication.
Let me leave the problems of the theorist and say a few words about economic policy and the criteria for policy which also stem from my recent exposure to the study of human relations in industry.
Intertemporal cluster 37: private_enterprise, free_enterprise, enterprise_system, enterprise, liberty
The cluster gathers 567 sentences from our corpus. It represents 0.35% of all the sentences selected over the whole period.
The community exists from 1940 to 1949.
The most recurring authors are Frank H. Knight (17 sentences), Harry Gunnison Brown (17 sentences), Edwin G. Nourse (15 sentences), Joseph J. Spengler (15 sentences), W. T. Easterbrook (14 sentences), William D. Grampp (14 sentences), Herbert A. Simon (9 sentences), I. L. Sharfman (9 sentences), Frederick C. Mills (8 sentences), J. E. Meade (8 sentences).
The most recurring journals are The American Economic Review (141 sentences), Journal of Political Economy (68 sentences), The American Journal of Economics and Sociology (45 sentences), Journal of Farm Economics (42 sentences), The Quarterly Journal of Economics (42 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
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enterprise
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planned_economy
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0.0003701
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
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Such a conclusion, by arbitrarily restricting the use of the terms “rational” and “voluntary” to certain specific processes in a free-market economy, would beg the entire issue of whether individual preferences are to be registered in a free market, or social preferences recognized through community action.
In the interest of the social whole, the “rational” state must determine the use of property, regulate the supply of different types of labor, and fix economic rewards.
Francois Perroux, J. Tinbergen , Jacques Rueff , Evsey D. Domar , E. F. Lundberg , M. Kalecki , J. Zagorski , K. Dalal
0.731
It must assume that the limits to this behavior are determined by the rational consent of all individuals participating in the economy, a consent which is expressed by either accepting the terms of the market through participating, or rejecting them by nonparticipation.
“6 A scheme of production based on the personal calculations and independent decisions of self-seeking individuals for unascertained markets not only breeds maladjustments but has to rely on”blind laws” to impress some order upon “the lawless caprice of the producer,” generally through the pressure of competitive self-interest and periodically through crises.
I do not mean to imply that the technique of the market can be applied to political affairs, or that this criterion alone can serve as the final basis for an appraisal of democracy or of private enterprise; but it does suggest that we should not resort to political control in areas where the mechanism of the market will function, unless there are overwhelmingly strong reasons for so doing.
There does not seem to be any valid reason why the revenue-expenditure process in governmental agencies need be characterized by less “rationality” or “free choice” than the private revenue-expenditure process - albeit the institutional framework through which the rationality is achieved and the choice exercised may be very different in the two cases.
V. Conclusion In the foregoing paper we have sought to examine certain fundamental and underlying considerations as they relate to government and private enterprise.
Brought up in the tradition of classical economics and influenced in their reasoning by the idea of the individual’s rationality and his sovereignty as a consumer, economists may be reluctant to face these facts.
If the concept of “rational consumers’ choice” has any applicability to the administrative processes of an interventionist state, it is as a guide to the proper behavior of administrators, rather than a description of how they actually do behave.
Nevertheless if one presses too hard the doctrine that all social activity must be subjected to the sovereign rule of cost-and-price economics, then all religious, moral, social, political, and even biological considerations must give way before it.
Important economic decisions are not ground out by impersonal competitive exchange in an open and driving market; they are made quite personally, by men relatively few men whom we do not choose and over whom we have only the most tenuous controls.
Three characteristics of the new policies bear on this question: the first is their technical character, the second is their character as a closed rational system, and the third is their claim to possess a higher value than other political aims.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
F. E. Dessauer
0.692
But, while progress in the rationality of the behavior of economic units is necessarily a slow process to which understanding of economic forces can contribute a great deal but only gradually in the course of time, better adaptation of the machinery of government to the tasks it must perform in modern society is an essential preliminary step long overdue in the upward climb toward a smoothly functioning economy.
We are shown in brilliant exposition that as long as the alternatives open to each individual can be clearly formulated, an economic system based on such foundations makes sense and possesses certain optimum properties for human welfare, however complicated and specialized the roles of the individual members of that economy may be.
It leads also to a certain looseness of thinking among those who fancy an economic problem can be solved by running away from the rigorous limitations imposed by ordinary business terms and invoking a new kind or measure of regulatory control, regardless of whether the net effect of such a solution is to destroy the independent action and voluntary choice which are the essence of a free people’s scale of values.
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
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For upon the principles of economics course, in the American democracy, has come to rest the obligation of making economic life, which can no longer operate under the guidance of the “invisible hand,” function under the “visible hand” of social control, operating to a considerable extent through governmental activity.’
I do not mean to imply that the technique of the market can be applied to political affairs, or that this criterion alone can serve as the final basis for an appraisal of democracy or of private enterprise; but it does suggest that we should not resort to political control in areas where the mechanism of the market will function, unless there are overwhelmingly strong reasons for so doing.
In the political climate of today in the western democratic world, economists and laymen alike are more than ever involved in the old, perpetual debate over economic freedom versus governmental and group controls.
This study may be of some interest to those who ponder the question of the reconcilability of the centralised and conscious direction of economic processes with the economic liberty of the individual as well as to those who reflect on the function of the price-mechanism in such a system.
IV No STUDY OF ECONOMICS is at all complete, of course-and this is implied in some of the previous discussion-if it does not lead the student to some awareness of the pressure groups and political forces in general by means of which, though inconsistently with what may be considered the normal mode of operation of the system of free private enterprise, laws are promulgated which lay some of us under tribute to others of us.
Such an approach leads to reliance, not upon documented economic dangers, but upon such emotion-laden and question-begging shibboleths as “regimentation” and “centralization,” broadcast with little reference to the inescapable dependence of the individual upon social process, the essentially national scope of the established economic system, the reasonably reassuring actualities in MARCH these respects of the general course of control experience.
It is argued here that much of the value of the writings of economic scientists about freedom lies in the light it throws on the possibilities and limitations of the attempt to establish general rules according to concepts derived mainly from one limited field of endeavour.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
W. T. Easterbrook
0.803
“2 But the main defect of political economy is its conclusion,” the sterile aphorism of absolute industrial liberty “,3 the belief that there is no need of some” special institution immediately charged with the task of regularising the spontaneous coordination ” which should be regarded as merely offering the opportunity for imposing real organisation.
in these spheres, however, which have constituted the traditional legal foundations of economic conduct, a process of continual development, in response to social pressures resulting from practical maladjustments of all sorts, is both necessary and unavoidable; and with the intensification of public consciousness as to desirable ends and appropriate means, more positive objectives are constantly emerging and being implemented-the powers and opportunities which inhere in our political democracy are being utilized not only to advance special interests, but to further the deliberate attainment of more general economic well-being.
Those who believe that democracy, individual freedom and international peace are all dependent on our success in improving the private enterprise system and making use of the adjustment mechanism provided by free market prices for goods, services and the factors of production are deeply concerned by planning measures of the type here discussed, which thwart rather than humanize and assist the adaptations which free prices show to be necessary.
Upon what ground should our economy be shifted, as the authors urge, from reliance on constructive ideas to reliance on political manipulation of economic life?
For the government not only to sanction free enterprise generally and to make public enterprise an exception, but also to safeguard freedom of access to markets and to enforce competition may be wholly consistent with the promotion of the common welfare in terms of “plenty” and nothing less than a disastrous blunder in other circumstances, when survival is at stake.
We are shown in brilliant exposition that as long as the alternatives open to each individual can be clearly formulated, an economic system based on such foundations makes sense and possesses certain optimum properties for human welfare, however complicated and specialized the roles of the individual members of that economy may be.
In our present society there is a large area-the economic one-in which it is necessary only that the State provide favorable conditions and in which, if favorable conditions are provided, the forces of demand and supply will operate automatically and impersonally, and without specific State direction in each separate transaction, to bring about the production and the essentially fair distribution of needed goods.
While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals; and that it suggests an inadequate explanation of the relations between the state and the citizens.
This is an Organized World, and in Such a World, Economic Power is Political Power; the Possession of Private Political Power Compels Government to Take Over Central Policy Guidance I hope I do not have to discuss the substance of the first half of this heading, but only its implications.
The cluster gathers 13098 sentences from our corpus. It represents 8.09% of all the sentences selected over the whole period.
The community exists from 1950 to 2019.
The most recurring authors are Herbert A. Simon (76 sentences), Robert Sugden (72 sentences), John Conlisk (68 sentences), David Dequech (63 sentences), Laurens Cherchye (62 sentences), Amos Witztum (61 sentences), Oliver E. Williamson (60 sentences), Bryan Caplan (57 sentences), William H. Redmond (55 sentences), Gary S. Becker (53 sentences).
The most recurring journals are The American Economic Review (997 sentences), Journal of Economic Issues (984 sentences), Econometrica (643 sentences), Cambridge Journal of Economics (601 sentences), Public Choice (593 sentences).
Top TF-IDF terms describing the community
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Top TF-IDF terms describing the community for each time window
Top terms 1950-1959
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Top terms 1960-1969
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game_situations
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Top terms 1970-1979
Token
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Top terms 1980-1989
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Top terms 1990-1999
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bounded
0.0107114
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0.0009884
Top terms 2000-2009
Token
TF-IDF
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0.0076694
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Top terms 2010-2019
Token
TF-IDF
bounded
0.0053687
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0.0051846
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
INTRODUCTION ALTHOUGH it has long been agreed that traditional economic theory “assumes” rational behavior, at one time there was considerable disagreement over the meaning of the word “rational.”
Using this concept of rationalizability in the context of rational expectations equilibria, the question thus is whether such equilibria can be justified as a unique consequence of individual rationality and common knowledge of this rationality.
Identifying rationality with one particular equilibrium concept can be highly misleading particularly in the presence of alternative sets of expectations that lead to widely different equilibria.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Tommaso Luzzati
0.849
A new concept of economic rationality evolves from this; it calls for provisos “for every possible conduct” of the other participants; that is, “its description must include rules of conduct for all conceivable situations - including those where ‘the others’ behaved irrationally”4.
Instead, the intention of the paper is just to take a few initial steps toward a broad approach to rationality and 1 At an anonymous referee’s suggestion, the term “rationality” is avoided here when referring to a non-neoclassical context.
At the same time, I believe that specific deviations from rationality in the agents’ choices and in the agents’ processing of information potentially enhance the realism and economic analysis of certain phenomena on a case- by-case basis.26 However, several examples of apparent deviation from rationality may be reconciled with the rational economic paradigm, once we recognize that rational investors have incomplete knowledge of the fundamental structure of the economy and engage in learning.27 In any case, the collection of these deviations from rationality does not yet amount to a new economic paradigm that challenges the rational economic model.
The preference and informational meanings of the term rational are often commingled by modern economists so that rational individuals become characterized as persons having consistent and durable preferences and unbiased expectations.
Nevertheless, it is worth emphasizing that, for the purpose of this paper, rationality is an assumption that is explored and not a hypothesis that is tested.
ACCORDING TO THE theory of rational expec tations, the decisions of individuals and organi zations can be influenced by what they anticipate conditions will be like in the future.1 Recent events indicate that such rational expectations need not arise for valid reasons in order to have a profound effect on the economy.
The purpose of this restriction is to demonstrate that even if the instru mental conception of rationality is accepted as appropriate for economics, the main justifications for its adoption all entail more severe restrictions on the application of the instrumental concept of rationality than is commonly acknowledged in economics.
Since models of bounded rationality do not rely on this assumption, deriving a similar empirically verifiable prediction of this paradigm is more dif- * Berk: School of Business Administration, University of Washington, Box 353200, Seattle, WA 98195-3200; Hughson: David Eccles School of Business, University of Utah, Salt Lake City, UT 84112; Vandezande: Simon Fraser University, Faculty of Business Administration, Burnaby, BC V5A 1S6, Canada.
The hypothesis of economic rationality has been defended on the basis of a priori theoretical considerations, and it has been supported by casual empirical observations.
The structure of rational beliefs In most economic applications the concept of “rationality” must be understood with respect to statements about conditional probabilities.
The various questions that have been raised about the rationality assumption appear to have legitimized and encouraged the development of economic theories that model departures from economic rationality in specific contexts.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
Sentence
Title
Year
Journal
Authors
Centroid Similarity
A new concept of economic rationality evolves from this; it calls for provisos “for every possible conduct” of the other participants; that is, “its description must include rules of conduct for all conceivable situations - including those where ‘the others’ behaved irrationally”4.
In the sphere of economic decisions and policies, there can and should be a fairly marked relative predominance of the role of an applied rationality having much in common, at least, with that which is called “scientific.”
However, the general decline in the rationalistic credo of our civilization manifests itself in economic thought in the slight reality value attributed to the postulate of rationality.36 The rationalistic models are interpreted as methodological devices, as hypothetical, heuristic principles.
We note that with few exceptions, economists and game theorists alike have tended to avoid such issues.41 Once we leave the realm of strictly competitive games, problems multiply rapidly and every author feels entitled to his own concept of rational behavior.
The term rational is used here to describe an economic system motivated not by traditional attitudes and customs, but by a conscious and systematic adjustment of economic means to the attainment of the objective of increasing national income per capita.
If social rationality is defined as producing results indicated as rational by the welfare function, that is, maximizing total utility in the utilitarian framework, a market decision is socially rational only if individuals are rational and individual utilities are independent.
Traditionally, economic theory has been based on an assumption that behavior is “rational,” in a specific sense to be defined shortly, whereas most psychological and sociological theory insists that behavior is, at least largely, “irrational.”
For rationality of choice is nothing less than the choice with complete awareness of the alternative rejected.31 Rationality is connected in economic thought with maximization.
INTRODUCTION ALTHOUGH it has long been agreed that traditional economic theory “assumes” rational behavior, at one time there was considerable disagreement over the meaning of the word “rational.”
Nevertheless, it is worth emphasizing that, for the purpose of this paper, rationality is an assumption that is explored and not a hypothesis that is tested.
The hypothesis of economic rationality has been defended on the basis of a priori theoretical considerations, and it has been supported by casual empirical observations.
Ever since, the assumption of “rational behavior”-with all its protean implications-has been a convenient and essential shorthand to describe a most complex set of elements which determine the making of economic decisions.
For though the development of economic rationalism is partly dependent on rational technique and law, it is at the same time determined by the ability and disposition of men to adopt certain types of practical rational conduct.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Niles M. Hansen
0.811
The Current State of Discussion on Economic Rationality The hypothesis of economic rationality is usually cast in the specific form of profit maximization.
Naturally, this progress of economic science, although considerable, is still limited, and besides, it does not necessarily imply that public and private decisions will be “rational,” although there may be a theoretical and scientific approximation with the rational.
Rather it is to show how the important theorems of modern economics result from a general principle which not only includes rational behavior and survivor arguments as special cases, but also much irrational behavior.
Probably most people, in dealing with economic questions, do make an effort to behave rationally, and so rational decision theories still acquire significance by being idealized pictures which people attempt to realize, but which is only achieved to a greater or lesser extent.
ACCORDING TO THE theory of rational expec tations, the decisions of individuals and organi zations can be influenced by what they anticipate conditions will be like in the future.1 Recent events indicate that such rational expectations need not arise for valid reasons in order to have a profound effect on the economy.
ible with rational market equilibrium, however far from rational they may appear to be when examined up close and in isolation.27 But we must be wary of the reverse inference that merely because a given heuristic persists, it must have some survival value and, hence, must have a rational “explanation.”
In all these cases please note we may-or we may not-assume rational economic behavior and a reasonably rational kind of economic organization more or less competitive, of greater or lesser scale from one case to another.
Recent research by R. Radner has shown that considerations of bounded rationality can in fact be cast in a rigorous analytical framework yielding interesting behavioral propositions.
Economic theory makes certain assumptions which scarcely ever correspond completely with reality but which approximate it in various degrees and asks: how would men act under these assumed conditions if their actions were entirely rational?
They conclude that the existence of some rational agents is not sufficient to guarantee a rational expectations equilibrium in an economy with some of what they call quasi-rational agents.
The overall conclusion that emerges from my analysis is that, if agents are assumed to be individually rational, convergence to the rational expectations equilibrium will not, in general, take place in the model.9 6Individual rationality entails in this context an attempt by agents to improve their forecasts of next period’s price once they receive survey information on the average opinion.
While the hypothesis here to be formulated postulates rationality in a reasonable sense, it recognizes not only the need for conditioning market expectations but also the existence of differences between the paths of “real” variables depending on which of alternative systematic nominal paths is chosen for conditioning.
On the other hand, one may alternatively define as rational only those expectations that fully incorporate an understanding of ” long-run” “market fundamentals”: namely, the assumption by each agent of rationally maximizing behavior by each other agent, each responding to observed changes in prices and quantities as would occur in a market model of “long-run equilibrium,” although observed through a screen of random, nonserially correlated, short-run disturbances.
Rationality is an immensely rich, complex, and subtle notion, and I certainly will not pretend to offer a completely satisfactory definition of it in this paper.
The paper may further be looked at as an effort to show that the rational choice approach on which modern economics is based does not mean that rationality of individual behavior must be assumed under all circumstances.
By making the conditions of statistical inference simultaneously express the theoretical concept of rational agents in logically consistent models/ the rational-expectations hypothesis and the special apparatus through which it is formalized, makes its approach internally elegant to the theoretician and natural to the econometrician.
To suppose that rational agents only have preferences over goods and leisure, that they have rational expectations, that all markets are Walrasian and that they clear at every instant is not only logically coherent but may also give interesting insights, although some of the insights recently claimed are wrong.
This example, coupled with the results obtained here as well as with recent U.K. and U.S. experience, raises the dual questions of what can be considered rational behavior a priori and how one can ascertain empirically whether behavior is or is not rational.
The purpose of this restriction is to demonstrate that even if the instru mental conception of rationality is accepted as appropriate for economics, the main justifications for its adoption all entail more severe restrictions on the application of the instrumental concept of rationality than is commonly acknowledged in economics.
Since models of bounded rationality do not rely on this assumption, deriving a similar empirically verifiable prediction of this paradigm is more dif- * Berk: School of Business Administration, University of Washington, Box 353200, Seattle, WA 98195-3200; Hughson: David Eccles School of Business, University of Utah, Salt Lake City, UT 84112; Vandezande: Simon Fraser University, Faculty of Business Administration, Burnaby, BC V5A 1S6, Canada.
The structure of rational beliefs In most economic applications the concept of “rationality” must be understood with respect to statements about conditional probabilities.
This article will argue for an enriched definition of rationality that considers the actual outcomes of decisions, and will present evidence that challenges the rationality assumption in new ways.
Incidentally, the rationality assumption used in economics may be interpreted as a device for generating behavioral patterns, in the sense that “rational” behavior can be distinguished from erratic behavior by obeying some constraints posed by rational calculation.
To this extent, the results of this paper have a dual interpretation as consequences of market rules or of successive refinements of individual rationality.
Using this concept of rationalizability in the context of rational expectations equilibria, the question thus is whether such equilibria can be justified as a unique consequence of individual rationality and common knowledge of this rationality.
Instead, the intention of the paper is just to take a few initial steps toward a broad approach to rationality and 1 At an anonymous referee’s suggestion, the term “rationality” is avoided here when referring to a non-neoclassical context.
At the same time, I believe that specific deviations from rationality in the agents’ choices and in the agents’ processing of information potentially enhance the realism and economic analysis of certain phenomena on a case- by-case basis.26 However, several examples of apparent deviation from rationality may be reconciled with the rational economic paradigm, once we recognize that rational investors have incomplete knowledge of the fundamental structure of the economy and engage in learning.27 In any case, the collection of these deviations from rationality does not yet amount to a new economic paradigm that challenges the rational economic model.
The preference and informational meanings of the term rational are often commingled by modern economists so that rational individuals become characterized as persons having consistent and durable preferences and unbiased expectations.
The various questions that have been raised about the rationality assumption appear to have legitimized and encouraged the development of economic theories that model departures from economic rationality in specific contexts.
Misunderstandings about the “true model” usually imply foregone profit opportunities, but the theory of rational irrationality helps uncover the exceptions to the rule.
Rational behaviour is a major assumption behind classical economic theory, but a number of economists have suggested that this assumption is unreliable.
What, I believe, differentiates this article from the existing literature in behavioural economics is our focus on the strategic considerations of bounded rationality.
It questions not only the assumption of automatic rationality in all economic behavior but also the limitations of attempts to explain nonrational behavior in terms of Herbert Simons’ “bounded rationality,” Richard H. Thaler’s “quasi rationality,” Robert J. Shiller’s “behavioral principles,” and of course the behavioral assumptions of the “new institutionalists.”
Faced with this shift of opinion, a last refuge of the supporters of the long venerated principle of rationality in economics has to be to define it simply in terms of behavioral consistency or transitivity: if X is preferred to Y and Y is preferred to Z then X must be preferred to Z.
Identifying rationality with one particular equilibrium concept can be highly misleading particularly in the presence of alternative sets of expectations that lead to widely different equilibria.
If the expectations of the players in the economy are initially not rational but deviate from rational expectations by a small amount, behaviour of the players in the economy will be changed.
Jasmina Arifovic, James Bullard , Olena Kostyshyna
0.826
If we consider the different types of rationality and the diversity within each type, the question that arises is whether the interaction between individuals with different rational specification will have an influence on the economics relationship between them.
Critiques Of Rationality Assumptions Are Nothing New Long before the contemporary behavioral economics program came to prominence, the economics discipline saw a good deal of complaining about the strictures of rationality assumptions - especially the ones re quired to rationalize a utility function representation of a preference or dering, and the self-interested rational actor model - long before Her bert Simon or the current leaders of the behavioral economics program began writing.
An example of a key objective for bounded rationality models, one illustrative of objec tives in many avenues of research, stems directly from these findings.
This approach stakes out a middle ground that avoids both the extreme rationality assumption that all agents play best responses and the position that the consequences of irra tionality are so unforeseeable that rational agents must adopt actions that are always optimal regardless of how irrational agents play.
Among the 350 closest sentences to the cluster’s centroid, 93.14% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Rationality is an immensely rich, complex, and subtle notion, and I certainly will not pretend to offer a completely satisfactory definition of it in this paper.
INTRODUCTION ALTHOUGH it has long been agreed that traditional economic theory “assumes” rational behavior, at one time there was considerable disagreement over the meaning of the word “rational.”
Nevertheless, it is worth emphasizing that, for the purpose of this paper, rationality is an assumption that is explored and not a hypothesis that is tested.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Tommaso Luzzati
0.882
3 September 2001 John R. Commons and Herbert A. Simon on the Concept of Rationality Joelle Forest and Caroline Mehier H. A. Simon and J. R. Commons are known to have been influenced by an intellectual context that explains a large part of their works, but it is worth emphasizing that the concepts of rationality developed by both Simon and Commons are very similar.
Instead, the intention of the paper is just to take a few initial steps toward a broad approach to rationality and 1 At an anonymous referee’s suggestion, the term “rationality” is avoided here when referring to a non-neoclassical context.
This article will argue for an enriched definition of rationality that considers the actual outcomes of decisions, and will present evidence that challenges the rationality assumption in new ways.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Daniel Kahneman
0.865
The domain of application of the concept of rationality appears to be more severely circumscribed where natural selection exerts its influence on the actions of agents, than where it eliminates agents who do not manifest behaviour which is optimal.
The various questions that have been raised about the rationality assumption appear to have legitimized and encouraged the development of economic theories that model departures from economic rationality in specific contexts.
The purpose of this restriction is to demonstrate that even if the instru mental conception of rationality is accepted as appropriate for economics, the main justifications for its adoption all entail more severe restrictions on the application of the instrumental concept of rationality than is commonly acknowledged in economics.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Rationality is an immensely rich, complex, and subtle notion, and I certainly will not pretend to offer a completely satisfactory definition of it in this paper.
INTRODUCTION ALTHOUGH it has long been agreed that traditional economic theory “assumes” rational behavior, at one time there was considerable disagreement over the meaning of the word “rational.”
Nevertheless, it is worth emphasizing that, for the purpose of this paper, rationality is an assumption that is explored and not a hypothesis that is tested.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Tommaso Luzzati
0.882
3 September 2001 John R. Commons and Herbert A. Simon on the Concept of Rationality Joelle Forest and Caroline Mehier H. A. Simon and J. R. Commons are known to have been influenced by an intellectual context that explains a large part of their works, but it is worth emphasizing that the concepts of rationality developed by both Simon and Commons are very similar.
Instead, the intention of the paper is just to take a few initial steps toward a broad approach to rationality and 1 At an anonymous referee’s suggestion, the term “rationality” is avoided here when referring to a non-neoclassical context.
This article will argue for an enriched definition of rationality that considers the actual outcomes of decisions, and will present evidence that challenges the rationality assumption in new ways.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Daniel Kahneman
0.865
The domain of application of the concept of rationality appears to be more severely circumscribed where natural selection exerts its influence on the actions of agents, than where it eliminates agents who do not manifest behaviour which is optimal.
The various questions that have been raised about the rationality assumption appear to have legitimized and encouraged the development of economic theories that model departures from economic rationality in specific contexts.
The purpose of this restriction is to demonstrate that even if the instru mental conception of rationality is accepted as appropriate for economics, the main justifications for its adoption all entail more severe restrictions on the application of the instrumental concept of rationality than is commonly acknowledged in economics.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
Sentence
Title
Year
Journal
Authors
Centroid Similarity
A new concept of economic rationality evolves from this; it calls for provisos “for every possible conduct” of the other participants; that is, “its description must include rules of conduct for all conceivable situations - including those where ‘the others’ behaved irrationally”4.
However, the general decline in the rationalistic credo of our civilization manifests itself in economic thought in the slight reality value attributed to the postulate of rationality.36 The rationalistic models are interpreted as methodological devices, as hypothetical, heuristic principles.
We may hypothesize a continuum of rationality, with decisions ranging from those made purely on impulse to those which may be regarded as fully rational.
In the sphere of economic decisions and policies, there can and should be a fairly marked relative predominance of the role of an applied rationality having much in common, at least, with that which is called “scientific.”
If social rationality is defined as producing results indicated as rational by the welfare function, that is, maximizing total utility in the utilitarian framework, a market decision is socially rational only if individuals are rational and individual utilities are independent.
We note that with few exceptions, economists and game theorists alike have tended to avoid such issues.41 Once we leave the realm of strictly competitive games, problems multiply rapidly and every author feels entitled to his own concept of rational behavior.
For rationality of choice is nothing less than the choice with complete awareness of the alternative rejected.31 Rationality is connected in economic thought with maximization.
Traditionally, economic theory has been based on an assumption that behavior is “rational,” in a specific sense to be defined shortly, whereas most psychological and sociological theory insists that behavior is, at least largely, “irrational.”
INTRODUCTION ALTHOUGH it has long been agreed that traditional economic theory “assumes” rational behavior, at one time there was considerable disagreement over the meaning of the word “rational.”
Nevertheless, it is worth emphasizing that, for the purpose of this paper, rationality is an assumption that is explored and not a hypothesis that is tested.
Ever since, the assumption of “rational behavior”-with all its protean implications-has been a convenient and essential shorthand to describe a most complex set of elements which determine the making of economic decisions.
The hypothesis of economic rationality has been defended on the basis of a priori theoretical considerations, and it has been supported by casual empirical observations.
Rather it is to show how the important theorems of modern economics result from a general principle which not only includes rational behavior and survivor arguments as special cases, but also much irrational behavior.
As in the “Dissenting View”, an alternative formulation of rationality is introduced by recognizing the existence of a positive minimaum sensibile for every consumer.
First, I would like to expand on the theme that almost all human behavior has a large rational component, but only in terms of the broader everyday sense of rationality, not the economists’ more specialized sense of maximization.
Recent research by R. Radner has shown that considerations of bounded rationality can in fact be cast in a rigorous analytical framework yielding interesting behavioral propositions.
However, the implications of more “rationality” will be considered, as well as whether the label is always being correctly applied.4 Two related ideas will be presented.
The formulation could be considered as the study of behavior characterized by bounded rationality, but it is mainly presented to motivate the empirical work.
Needless to say, an objective of this article is to consider the meaning of non-rational behavior and how its existence places an important limitation on the scope and value of economic inquiry.
ible with rational market equilibrium, however far from rational they may appear to be when examined up close and in isolation.27 But we must be wary of the reverse inference that merely because a given heuristic persists, it must have some survival value and, hence, must have a rational “explanation.”
Rationality is an immensely rich, complex, and subtle notion, and I certainly will not pretend to offer a completely satisfactory definition of it in this paper.
Alternative routes to rationalizability are considered in Section 4, where it is shown that several plausible modes of boundedly rational behavior will lead to strategic choices which are, in some sense, almost rationalizable.
This example, coupled with the results obtained here as well as with recent U.K. and U.S. experience, raises the dual questions of what can be considered rational behavior a priori and how one can ascertain empirically whether behavior is or is not rational.
As far as rationality is concerned, it is assumed that there exists an objective function, the maximisation of which is rational behaviour; neither of these assumptions are confirmed by empirical observations.
Although it is sometimes believed that Herbert Simon’s notion of bounded rationality is alien to the rationality tradition in economics, Simon actually enlarges rather than reduces the scope for rationality analysis.
The paper may further be looked at as an effort to show that the rational choice approach on which modern economics is based does not mean that rationality of individual behavior must be assumed under all circumstances.
This article will argue for an enriched definition of rationality that considers the actual outcomes of decisions, and will present evidence that challenges the rationality assumption in new ways.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Daniel Kahneman
0.865
The domain of application of the concept of rationality appears to be more severely circumscribed where natural selection exerts its influence on the actions of agents, than where it eliminates agents who do not manifest behaviour which is optimal.
The purpose of this restriction is to demonstrate that even if the instru mental conception of rationality is accepted as appropriate for economics, the main justifications for its adoption all entail more severe restrictions on the application of the instrumental concept of rationality than is commonly acknowledged in economics.
“Bounded rationality”, understood as more realistic assumptions about individual behavior and decision making, can be brought in by degrees as seems necessary for the explanatory task at hand.
3 September 2001 John R. Commons and Herbert A. Simon on the Concept of Rationality Joelle Forest and Caroline Mehier H. A. Simon and J. R. Commons are known to have been influenced by an intellectual context that explains a large part of their works, but it is worth emphasizing that the concepts of rationality developed by both Simon and Commons are very similar.
Instead, the intention of the paper is just to take a few initial steps toward a broad approach to rationality and 1 At an anonymous referee’s suggestion, the term “rationality” is avoided here when referring to a non-neoclassical context.
The various questions that have been raised about the rationality assumption appear to have legitimized and encouraged the development of economic theories that model departures from economic rationality in specific contexts.
The preference and informational meanings of the term rational are often commingled by modern economists so that rational individuals become characterized as persons having consistent and durable preferences and unbiased expectations.
Bounded rationality is not a condemnation of economic agents’ cog nitive abilities but a recognition that compu tation requires resources, and resources are scarce.
Bharath Arunachalam, Shida R. Henneberry, Jayson L. Lusk , F. Bailey Norwood
0.849
It questions not only the assumption of automatic rationality in all economic behavior but also the limitations of attempts to explain nonrational behavior in terms of Herbert Simons’ “bounded rationality,” Richard H. Thaler’s “quasi rationality,” Robert J. Shiller’s “behavioral principles,” and of course the behavioral assumptions of the “new institutionalists.”
Using this concept of rationalizability in the context of rational expectations equilibria, the question thus is whether such equilibria can be justified as a unique consequence of individual rationality and common knowledge of this rationality.
In attempting to explain the actions of individuals, American economists frequently invoke what are referred to as traditional “postulates of rationality.”
If rationality can be characterized by conditions on preferences coupled with the assumption that preferences guide choices and, in addition, people are, to a reasonable degree of approximation rational, then the theory of rationality can be invoked to explain their choices.
If we consider the different types of rationality and the diversity within each type, the question that arises is whether the interaction between individuals with different rational specification will have an influence on the economics relationship between them.
Thus we see that the typical economic model of rationality can be construed as an instrumentally rational self-interested person or as an expressively rational individual who believes in self-reliance and the social institutions that promote it.
The Canadian Journal of Economics / Revue canadienne d’Economique
Gorkem Celik , Michael Peters
0.840
Our results fit well into the concept of bounded rationality in the sense that subjects behave in a sensible way, but fail to achieve full rationality.
The degree of rationality in the system and rules can be discussed, but the individual’s choice is often to act rationally within the system’s given limits.
An example of a key objective for bounded rationality models, one illustrative of objec tives in many avenues of research, stems directly from these findings.
Critiques Of Rationality Assumptions Are Nothing New Long before the contemporary behavioral economics program came to prominence, the economics discipline saw a good deal of complaining about the strictures of rationality assumptions - especially the ones re quired to rationalize a utility function representation of a preference or dering, and the self-interested rational actor model - long before Her bert Simon or the current leaders of the behavioral economics program began writing.
Identifying rationality with one particular equilibrium concept can be highly misleading particularly in the presence of alternative sets of expectations that lead to widely different equilibria.
The cluster gathers 1552 sentences from our corpus. It represents 0.96% of all the sentences selected over the whole period.
The community exists from 1950 to 1979.
The most recurring authors are E. J. Mishan (21 sentences), Drago Gorupić (18 sentences), Franco Modigliani (16 sentences), Pierangelo Garegnani (13 sentences), Stephen A. Marglin (12 sentences), George Hajdu (11 sentences), James W. Angell (11 sentences), Ronald L. Meek (11 sentences), Eirik G. Furubotn (10 sentences), K. N. Raj (10 sentences).
The most recurring journals are The American Economic Review (179 sentences), The Journal of Finance (149 sentences), The Quarterly Journal of Economics (143 sentences), The Economic Journal (115 sentences), Journal of Political Economy (90 sentences).
Top TF-IDF terms describing the community
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TF-IDF
investment
0.0030558
investment_decision
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investment_decisions
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public_investment
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investment_behavior
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investments
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portfolio
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Top TF-IDF terms describing the community for each time window
Top terms 1950-1959
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TF-IDF
investment
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investment_decisions
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acceleration
0.0026073
investment_decision
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private_investment
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invest
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investor
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investments
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Top terms 1960-1969
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investment
0.0050234
investment_decision
0.0037029
investment_decisions
0.0028910
public_investment
0.0028585
projects
0.0022960
investment_projects
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investments
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marginal_efficiency
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invest
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investment_function
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market_rate
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investment_opportunities
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Top terms 1970-1979
Token
TF-IDF
investment
0.0035722
investment_decisions
0.0027411
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
I assume that firms have rational expectations about the behavior of the economy when they make investment decisions; they may or may not anticipate the offsetting policy actions, and I contrast the two cases.
Martin Neil Baily , Edmund S. Phelps , Benjamin M. Friedman
0.765
Let us suppose first, therefore, that we are considering an intelligent investor who is operating on a substantial scale for his own account, and who is endeavoring to behave “rationally.”
Finally, it is worth noting how, as a by-product of this analysis, the well known von Mises-von Hayek proposition about rational economic choice in two alternative economic systems will have to be reversed: consistent investment choices appear now to be impossible in the unplanned economy.
Ill. Noneconomic Factors in the Investment Decision Choice, as the essential aspect of a decision, is subject not only to rational and economic criteria, but also to irrational and noneconomic ones.
The implications of the theory for consumption and investment behavior are discussed, as well as the role of rational expectations in determining contract provisions.
It is not self-evident that we shall choose one of two alternative quantities of goods offered for sale merely because the unit price happens to be lowest; it should be no more self-evident that we shall choose a certain investment alternative merely because the internal rate of interest happens to be the highest.
Another advantage of the system is that it creates conditions in which the base level not only wants but also must undertake rational investment decisions, although they are rational from their own and not the general social point of view.
While clear-cut investment decisions will always be difficult where conflicting objectives must be reconciled, the decisions are more likely to be rational if the 1.
In section 7 we shall then discuss the validity of these premises, and conclude that, even if we remain within the limits of an analysis conducted in ‘real’ and ‘static’ terms—abstracting, that is, from the obstacles which the monetary system and the state of expectations may raise for an equilibrating process —economic theory does not seem to provide a sufficient basis for the idea that market forces can ensure the adjustment of decisions to invest to decisions to save in the long period.
Under some human motivation or other, a group must come to perceive it to be both possible and good to undertake acts of capital investment; and, for their ’efforts to be tolerably successful, they must act with approximate rationality in selecting the directions toward which their enterprise is directed.
Analysing individual decisions by themselves one cannot qualify as irrational the investments aimed at the elimination of physical Acta Oe 1 shortages or at the substitution of western imports - even if they are opposed to the central decisions intended to restrict the growth of investments.
By considering, however, a number of other factors that enter into the investment decision, an analysis of broader scope may be made which sheds more light on this apparent economic irrationality and indicates how the conventional analysis needs to be modified.
It is, however, possible that - with respect to the need of infrastructural and social investments or to the discounting of values pertaining to the more distant future - the social optimum of the investments will be smaller than the rational maximum determined by the method expounded here.
Only when this condition is met can the rational business also maximize by forming a relationship between investment-expectations and actual expenditure which leaves disturbances normally distributed; because only then will disturbances in expected-values also be normally distributed.
The alternative suggested here is to buy increased generality with respect to the nature of investments at the cost of decreased generality with respect to the nature of preferences.
This substantiates the assumption that in fact it may be possible to explain the capitalist investment or price policy on psychological grounds just as well as on the grounds of pure economic theory.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Finally, it is worth noting how, as a by-product of this analysis, the well known von Mises-von Hayek proposition about rational economic choice in two alternative economic systems will have to be reversed: consistent investment choices appear now to be impossible in the unplanned economy.
While clear-cut investment decisions will always be difficult where conflicting objectives must be reconciled, the decisions are more likely to be rational if the 1.
Under some human motivation or other, a group must come to perceive it to be both possible and good to undertake acts of capital investment; and, for their ’efforts to be tolerably successful, they must act with approximate rationality in selecting the directions toward which their enterprise is directed.
In the analogue of the competitive market there would be no basis for a rational investment decision; here also the possibility of making profits or losses depends on the total commitment of resources, while it is by no means obvious that any way of obtaining information about this is available.
Thus if we reject the obviously absurd assumption that investment fluctuations reflect changes in tastes, we are left to conclude that rational choice with respect to the amount of investment is possible only in a planned economy.
Another writer says that “where investment decisions are based on subjective judgments of the relative value of different things and not objective comparison of their values expressed in some common unit such as money, the correctness of these decisions can also only be determined by recourse to somebody’s judgment of the value of the results achieved.”
It has extended the scope of the dilemma by insisting on the existence of quantitative economic criteria of investment choice, binding the project-maker and the planner alike, and it has almost in the same breath released the latter from such criteria and subordinated his decisions to socio-political imponderables only.
Professor Kahn has recently given closer attention to this problem.4 According to his exegesis, the precautionary motive should not be lumped in with the transactions motive, as Keynes did, but it should be treated as a close partner of the speculative motive.
As was stated earlier, it is impossible to generalize about the appropriate choice of investment priorities; the arguments made here are such that each case has to be examined on its own merits.
1 A boundary of vagueness must always surround any category of investment, and there must always be doubtful cases; this is especially true where we are classifying by motive, because motives, in the economic no less than in the moral world, are mixed.
Let us suppose first, therefore, that we are considering an intelligent investor who is operating on a substantial scale for his own account, and who is endeavoring to behave “rationally.”
Ill. Noneconomic Factors in the Investment Decision Choice, as the essential aspect of a decision, is subject not only to rational and economic criteria, but also to irrational and noneconomic ones.
It is not self-evident that we shall choose one of two alternative quantities of goods offered for sale merely because the unit price happens to be lowest; it should be no more self-evident that we shall choose a certain investment alternative merely because the internal rate of interest happens to be the highest.
By considering, however, a number of other factors that enter into the investment decision, an analysis of broader scope may be made which sheds more light on this apparent economic irrationality and indicates how the conventional analysis needs to be modified.
The alternative suggested here is to buy increased generality with respect to the nature of investments at the cost of decreased generality with respect to the nature of preferences.
35Here and subsequently in this paper, I am indebted to Professor Rosenberg’s article, previously mentioned, which analyses patterns of investment in terms of the rationality of choice.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Barry E. Supple
0.687
that the rate of interest determined in an atomistic competitive market need have any normative significance in the planning of collective investment.”
To the extent to which any part of such an expenditure is investment in this sense it is rarely if ever “rational” investment based on a careful comparison of alternate investment opportunities, with the anticipated monetary return and the degree of safety as guiding rods.
I assume that firms have rational expectations about the behavior of the economy when they make investment decisions; they may or may not anticipate the offsetting policy actions, and I contrast the two cases.
The implications of the theory for consumption and investment behavior are discussed, as well as the role of rational expectations in determining contract provisions.
Another advantage of the system is that it creates conditions in which the base level not only wants but also must undertake rational investment decisions, although they are rational from their own and not the general social point of view.
In section 7 we shall then discuss the validity of these premises, and conclude that, even if we remain within the limits of an analysis conducted in ‘real’ and ‘static’ terms—abstracting, that is, from the obstacles which the monetary system and the state of expectations may raise for an equilibrating process —economic theory does not seem to provide a sufficient basis for the idea that market forces can ensure the adjustment of decisions to invest to decisions to save in the long period.
Analysing individual decisions by themselves one cannot qualify as irrational the investments aimed at the elimination of physical Acta Oe 1 shortages or at the substitution of western imports - even if they are opposed to the central decisions intended to restrict the growth of investments.
It is, however, possible that - with respect to the need of infrastructural and social investments or to the discounting of values pertaining to the more distant future - the social optimum of the investments will be smaller than the rational maximum determined by the method expounded here.
Only when this condition is met can the rational business also maximize by forming a relationship between investment-expectations and actual expenditure which leaves disturbances normally distributed; because only then will disturbances in expected-values also be normally distributed.
This substantiates the assumption that in fact it may be possible to explain the capitalist investment or price policy on psychological grounds just as well as on the grounds of pure economic theory.
There are different criteria for appraising investment and operation activity with marked dominance of the latter criteria, and as a result rational investment decisions are either not made or unwillingly executed if from the point of view of the operation criteria they are not advantageous or are risky.
While the market may be the place where businessmen invest the bulk of their funds, the “parameters” that mainstream economists are so prone to ignore frequently are established in the political arena by an investment process that falls outside the purview of mainstream logic.
Moreover, it is well to recall that our conclusion regarding production-investment decisions does not assume that economic agents have homogeneous preferences or identical initial wealth endowments, or that they agree on assessed distribution functions.
Among the 150 closest sentences to the cluster’s centroid, 4.67% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Under some human motivation or other, a group must come to perceive it to be both possible and good to undertake acts of capital investment; and, for their ’efforts to be tolerably successful, they must act with approximate rationality in selecting the directions toward which their enterprise is directed.
35Here and subsequently in this paper, I am indebted to Professor Rosenberg’s article, previously mentioned, which analyses patterns of investment in terms of the rationality of choice.
It is through this investment activity that time and uncertainty enter into the economizing process and, “it is by way of the capital account that uncertainty enters into the rational management of production, and in changes in capital the special problem of profit lies.
In the field of investment preferences I have suggested the breaking-down of the rationale of investment decisions into its component elements; in other words, to analyze the factual information available to a prospective investor, its relevance for the future, and the profit-and-loss expectations that arise from such considerations.
It will at once be recognized by those familiar with the relevant literature that the foregoing is, in effect, no more than a static exposition of a problem much discussed in quasi-dynamic terms in connexion with the theory of investment.
A POSTSCRIPT ABOUT INVESTMENT It may be of interest that two assumptions about investment decisions in addition to the one made in the main text would produce essentially the same results.
The essential point is that total investment should not be divided into pairs of categories which are inconsistent with one another; into induced investment, for example, which is a vaguely defined market-relationship category, and investment having a long earning life, which is a temporal category.
We may illustrate this by reference to a controversy which has appeared on occasion in the literature on the principle: is investment a function of the rate of growth of output or of its level ?
Neither the net satisfaction expected from the investment nor the desirability of holding cash, to repeat, may be expressed by the investor in consciously quantitative terms, but it is again clear that comparisons are made in the actual world, and that decisions are reached in terms of “greater or less,” if not in terms of cardinal magnitudes.
Summary and Conclusions The results presented in this report lead to the following conclusions: First, the investment decision is related inherently to decisions with respect to other inputs whose adjustment it both affects and is affected by.
The individual investor, even if possessed of complete confidence in the government’s ability to fulfill its guarantee as to national income, must be less than 100% certain that demand for the product of his firm will increase at the “guaranteed” rate.6 This uncertainty may be regarded as a cost which retards investment.
Thus it is assumed that in making an investment each investor expects to receive a certain part of the resulting increase in output as profits even though profit levels are determined by different factors.7 It is about 6For instance, mistaken appreciation of the results of investment on output would cause the private to diverge from the social marginal efficiency of investment.
Charles F. Walker, Allan H. Meltzer , Edgar Peske , Bion B. Howard , John P. Shelton , Ragnar D. Naess
0.815
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It will at once be recognized by those familiar with the relevant literature that the foregoing is, in effect, no more than a static exposition of a problem much discussed in quasi-dynamic terms in connexion with the theory of investment.
The essential point is that total investment should not be divided into pairs of categories which are inconsistent with one another; into induced investment, for example, which is a vaguely defined market-relationship category, and investment having a long earning life, which is a temporal category.
We may illustrate this by reference to a controversy which has appeared on occasion in the literature on the principle: is investment a function of the rate of growth of output or of its level ?
The individual investor, even if possessed of complete confidence in the government’s ability to fulfill its guarantee as to national income, must be less than 100% certain that demand for the product of his firm will increase at the “guaranteed” rate.6 This uncertainty may be regarded as a cost which retards investment.
It is an implication of this analysis, though it cannot be pursued here in detail, that solutions to the problem of investment decision recently proposed by Boulding, Samuelson, Scitovsky, and the Lutzes are at least in part erroneous.
The reasoning is that, in certain categories of investment considered essential, there is likely to be no such choice on account of technical factors, and that the capital-output DHA?
A second group agrees explicitly or implicitly with this view of the general problem of investment choice but attempts to formulate a criterion which will govern the choice among alternative methods of producing a given output.
It is primarily this concept of investment as consisting in the release of idle balances which gives rise to difficulties.4 2 This note was prompted by a question of Professor D. H. Robertson’s, and has benefited by his criticisms.
Under some human motivation or other, a group must come to perceive it to be both possible and good to undertake acts of capital investment; and, for their ’efforts to be tolerably successful, they must act with approximate rationality in selecting the directions toward which their enterprise is directed.
A POSTSCRIPT ABOUT INVESTMENT It may be of interest that two assumptions about investment decisions in addition to the one made in the main text would produce essentially the same results.
Neither the net satisfaction expected from the investment nor the desirability of holding cash, to repeat, may be expressed by the investor in consciously quantitative terms, but it is again clear that comparisons are made in the actual world, and that decisions are reached in terms of “greater or less,” if not in terms of cardinal magnitudes.
Thus it is assumed that in making an investment each investor expects to receive a certain part of the resulting increase in output as profits even though profit levels are determined by different factors.7 It is about 6For instance, mistaken appreciation of the results of investment on output would cause the private to diverge from the social marginal efficiency of investment.
Charles F. Walker, Allan H. Meltzer , Edgar Peske , Bion B. Howard , John P. Shelton , Ragnar D. Naess
0.815
Moreover, sin In order to explore this problem in a more sophisticated and presumably more realistic’ context we now turn to a neoclassical model of investment which has enjoyed substantial popularity in recent years.
Summary and Conclusions The results presented in this report lead to the following conclusions: First, the investment decision is related inherently to decisions with respect to other inputs whose adjustment it both affects and is affected by.
The introduction of expectations into the treatment of investment therefore becomes necessary to the extent, and only to the extent, that the results of investment are treated as profits rather than material or physical goods.6 In chapter 12 of the General Theory, the treatment of investment loses even its formal resemblance to that of neoclassical economics.
Investment is stimulated when capital is valued more highly in the market than it costs to produce it, and discouraged when its valuation is less than its replacement cost.”
Investment is stimulated when capital is valued more highly in the market than costs to produce it, and discouraged when its valuation is less than its replacement cost.”
are allowed to include any assumption that tends to magnify the role of investments, since our analysis is aimed precisely against overestimating the role of investments.
On the execution of investments From what has been said it may seem that the problem of investment equilibrium is only one of planning, decision and finances.
As is clear in Keynes’s own discussion of investment decisions, the uncertainty surrounding investment is not the uncertainty concerning its “physical product” but rather the uncertainty concerning the realization of the value of its products.5 This realization is uncertain because the configuration of prices in the economy may change between the time of the installation of capital equipment and the time of the existence of its products.
The cluster gathers 1350 sentences from our corpus. It represents 0.83% of all the sentences selected over the whole period.
The community exists from 1950 to 1959.
The most recurring authors are Frank H. Knight (16 sentences), Ben W. Lewis (15 sentences), Rutledge Vining (15 sentences), John E. Elliott (13 sentences), Trygve Haavelmo (12 sentences), Walter A. Weisskopf (12 sentences), Howard S. Ellis (11 sentences), P. T. Bauer (11 sentences), Fritz Machlup (9 sentences), H. Scott Gordon (9 sentences).
The most recurring journals are The American Economic Review (251 sentences), The Quarterly Journal of Economics (144 sentences), Journal of Farm Economics (111 sentences), The Economic Journal (87 sentences), Journal of Political Economy (79 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
economic_development
0.0005691
economic_planning
0.0004354
free_enterprise
0.0004328
underdeveloped
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planning
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central_planning
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economic_change
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private_enterprise
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behavior
0.0002457
capitalistic
0.0002453
economic_progress
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schumpeter’s
0.0002441
external_economies
0.0002360
strictly_economic
0.0002360
enterprise_system
0.0002313
democracy
0.0002289
economic_considerations
0.0002289
economic_criteria
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economic_motivation
0.0002196
losers
0.0002196
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Some of this evidence can be interpreted in terms of “rational conduct,” but not in terms of economic maximization.
If we temporarily abandon all of our preconceived notions of how well-behaved, rational, logically constructed economies should behave, three cases will hold an interest for us: Case 1.
But there is a reason for the particular approach and the economic applications chosen by N-M and the apparent omissions just mentioned: it is their notion of rational economic behaviour, which we are going to discuss in the first section.
Perhaps a few additional comments should be made concerning the fundamental assumptions, particularly the postulate of rational action, the “economic principle” of aiming at the attainment of a maximum of given ends.
Let me say clearly in advance that in no case do I reject the reasoning completely; but that in all cases I attach much greater weight than do the proponents of these theories to the limits of possible gain, to the risks and costs of the proposed line of action, and to the merits of alternative policies.
We are concerned here with the explanation of economic behavior and so are concerned with the utility function, and the behavior it implies, rather than with the structure or intuitive appeal of the axioms.
Whether or not the economic mind rests indifferent to ends, the civilized mind - and there is, of course, no reason why both minds should not reside in the same individual - simply cannot accept economic propositions or measures from any source without the most searching examination of the totality of their likely consequences.
The equilibrating forces inherent in the human drive for social efficiency modify the adjustments, anticipated in terms of the assumptions of pure economic rationality.
Hence, economic tasks - whether aiming at the acquisition of wealth or the instruments of defence - are never rigidly given; on the contrary, the rational choice of an economic task must always fully weigh up its social implications.
Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and Theoretical Economics
MICHAEL POLANYI
0.705
And within its own sphere the economic democracy of the free market and price system would insure a continuous reciprocal adjustment of all private economic decisions and activities, such that they would all be rational, not only in the self-interests of those concerned, but, also, in fact, in the common interest of all in the society.
While this is the legitimate aspiration of the policy maker, rarely is it possible to achieve optimum rationality in the process of economic development.
In reality, the dispositions of economic units are the inextricable result of old intentions and new considerations with which any contradistinction between ex ante and ex post loses its point.”
Among the 50 closest sentences to the cluster’s centroid, 4% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
If we temporarily abandon all of our preconceived notions of how well-behaved, rational, logically constructed economies should behave, three cases will hold an interest for us: Case 1.
Perhaps a few additional comments should be made concerning the fundamental assumptions, particularly the postulate of rational action, the “economic principle” of aiming at the attainment of a maximum of given ends.
I would like to develop the reason why this possibility has a basis in economic fact and why this basis becomes solider and broader the more we sweep away the mists of phraseology and the unconscious acceptance of traditional economic relations that are weakening.
If we temporarily abandon all of our preconceived notions of how well-behaved, rational, logically constructed economies should behave, three cases will hold an interest for us: Case 1.
Again, there should be no doubt that mental attitudes, religious, ethical, legal, political and other social norms, prejudices, customs, etc., are highly important in many economic problems; that it is methodologically sound to include such matters among the underlying conditions; and that there is no harm in regarding them as part of the „structure of the economy” - as long as one avoids an air of mysticism by specifying precisely what one is talking about, and just when and why it is supposed to be relevant.
As we have observed the buffeting that economic tendencies actually receive in the process of yielding up their consequences, we have come to speak less of causes and more of determinants and functional relationships.
In the light of our traditional theory, we might expect their economic activities not only to be guided by, but to be rather closely determined, indeed, almost compelled, by the automatic, competitive market forces on which we like to believe we rely to regulate the conduct of our economic affairs.
Does it not assume away the things we should be thinking most about?27 The economic system manufactures not only products but also tastes, ideas, men, and cultural change, and all of these are interrelated in complex fashion.
The third part raises questions regarding the study of the behavior or operating characteristics of the actual economic system that are apart from any immediate and specific topic of social discussion-the search for any permanencies and uniformities in the structure and functioning of an economic system that may be brought to the level of consciousness as setting the conditions under which solutions of social problems are to be sought.
It seems reasonable to assume that general economic welfare in the society will depend not only upon the market point x, but also upon the system, S, under which x is obtained.
The cluster gathers 2838 sentences from our corpus. It represents 1.75% of all the sentences selected over the whole period.
The community exists from 1950 to 1979.
The most recurring authors are E. J. Mishan (39 sentences), James M. Buchanan (29 sentences), George J. Stigler (24 sentences), Paul A. Samuelson (23 sentences), Gary S. Becker (20 sentences), Kenneth J. Arrow (20 sentences), John G. Head (19 sentences), Tibor Scitovsky (19 sentences), Ronald L. Meek (18 sentences), Milton Friedman (17 sentences).
The most recurring journals are The American Economic Review (332 sentences), Journal of Political Economy (283 sentences), The Quarterly Journal of Economics (192 sentences), The Economic Journal (174 sentences), Economica (170 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
demand_theory
0.0005630
diminishing_marginal
0.0005286
utility_function
0.0005181
consumer’s
0.0005074
consumer
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utility_theory
0.0004730
consumer_choice
0.0004673
optimal
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consumer_behavior
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preferences
0.0004080
consumer_demand
0.0003983
demand_functions
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utility_maximization
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utility_functions
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expected_utility
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future_consumption
0.0003627
demand_curves
0.0003609
allocation
0.0003580
rational_consumer
0.0003276
interpersonal
0.0003006
Top TF-IDF terms describing the community for each time window
Top terms 1950-1959
Token
TF-IDF
diminishing_marginal
0.0015291
interpersonal
0.0011152
welfare_economics
0.0010815
optimum_allocation
0.0010533
marginal_utility
0.0008497
scarcity
0.0008489
cardinal
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resource
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satisfactions
0.0006874
utility_theory
0.0006836
allocation
0.0006758
scarce
0.0006693
scarce_resources
0.0006562
Top terms 1960-1969
Token
TF-IDF
quantity_theory
0.0009752
balances
0.0008864
real_balances
0.0008501
consumer’s
0.0008311
consumed
0.0007032
expenditure
0.0006956
demand_curves
0.0006930
consumer
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social_rate
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consumer_demand
0.0006635
holdings
0.0006611
demand_theory
0.0006474
indivisibility
0.0006319
stocks
0.0006206
demand_curve
0.0005960
Top terms 1970-1979
Token
TF-IDF
demand_theory
0.0011830
consumer
0.0011061
consumer_choice
0.0009992
utility_function
0.0009737
future_consumption
0.0009648
consumer’s
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demand_functions
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consumer_theory
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utility_maximization
0.0008301
consumer_behavior
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optimal
0.0007311
individual’s_utility
0.0007305
consumption_function
0.0007287
expected_utility
0.0007084
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Yet, if we accept the proposition that in the real world, business and consumers are often motivated by non-economic factors or rather recognize that “real” economic behavior is much more complex than assumed in the conventional model of “rational” economic behavior, then the economist is faced with a dilemma: he can no longer assume a simple profit maximization model and he cannot justify the assumption that any firm always both maximizes the efficiency of any program and automatically minimizes its cost; for assuming the latter would be an error which “…should be taken seriously for it can lead to some wild compromising criteria.
To the extent that rationality for consumers may concur with rationality for agents more generally, a secondary theme that can be abstracted from revealed preference theory is the pursuit of the concept of rational choice.
One provocative conclusion that emerges from this approach is that the rational economic man in his role as consumer will not seek the conventional consumer equilibrium position under normal circumstances.
It is natural to begin the series of illustrations with those theories regarding the rational behavior of private subjects-consumers and firms-under so called “quantity adjustment”.
The expenditure minimization concept of rationality in our highly idealized situation is consistent with models which include risk, uncertainty, growth, or irregularities in consumption behavior.
1 As soon as we postulate that the norm relating means to ends is that of intrinsic rationality,2 the maximisation of a utility index is implied, and the foundation stone of economic analysis has been laid.
’4 Ekern and Wilson and 14 An alternative to the forecasting interpretation is to view an incomplete market equilibrium as a rational expectations equilibrium in which consumers use their equilibrium implicit prices to evaluate production plans.
At some point, presumably, it is advantageous to give up a little of the parsimony and elegance of economic theories about the behavior of consumers, workers, and businessmen, for improvement in ability to explain and predict that behavior.
Private rationality requires that holdings of cash be chosen such that the value of resources saved are equal at the margin to the value of goods and services that the same resources would produce in their best alternative use.
1 deny that households act “rationally” since rational behavior is now taken to signify maximization of a consistent and transitive function.6 How can these extensive criticisms be reconciled with the fact that the main implication of utility theory-that market demand curves would be negatively inclined-has been consistently verified empirically and found extremely useful in practical problems?
Instead, the following essay will seek to show that even on the assumption of economic rationality, the traditional model of consumer choice may not be tenable.
If a rational individual determines his choices in the market for private products and factors in such a way that it will enhance his basic welfare level, it is reasonable to assume that his choices for public goods will also be guided by this consideration.
Zeitschrift für Nationalökonomie / Journal of Economics
Richard E. Quandt
0.722
Economic theory has rarely bothered to discuss the ends as such; it has seldom been interested in the impact of unconscious needs; and it has paid very limited attention to the problem of what exactly it meant to classify as “rational,” with respect to either ends or choices.
This analytical statement must be distinguished from the frequently encountered arithmetical statement that a market would behave rationally even if only a few households did, assuming always that the average consumption of other households did not move perversely.
One of our critics states flatly that: “Theory or ‘intuition’ is necessary to specify components of autonomous expenditure,”37 without, of course, specifying what the content of the one theory is that is to give content to the other theory, or how different “intuitions” are to be reconciled.
1 As soon as we postulate that the norm relating means to ends is that of intrinsic rationality,2 the maximisation of a utility index is implied, and the foundation stone of economic analysis has been laid.
Economic theory has rarely bothered to discuss the ends as such; it has seldom been interested in the impact of unconscious needs; and it has paid very limited attention to the problem of what exactly it meant to classify as “rational,” with respect to either ends or choices.
Subsequently, after general relative scarcity of goods had been recognized as a factor which was fundamental to any economic considerations, the idea of maximization provided a “rational principle” to quite a number of economic doctrines; that is to say, a principle which, when generally observed, could be assumed to assure the smooth functioning of the system envisaged by the doctrine.
Thus, according to Professor Pigou, the freely functioning price-system and rational behaviour on the part of individuals will not lead to an optimum utilization of resources over time.8 This argument has yet to be refuted on a priori grounds, and it is not intended to go into it here.
Thus, through variations in the current price of a durable good, the freedom of each economic unit to do as it pleases is rationalized with the necessity for units in the aggregate to hold a predetermined quantity of each durable good.
As will become clear in the sequel, the great simplification which the concept of “utility” introduced in economic theory was not entirely gratuitous since its general adoption led to many unfounded controversies and also influenced us in refusing to accept some elemental facts because they did not fit in the theoretical scheme.
It was assumed that the freedom of each individual to balance his marginal utilities and disutilities was limited only by a similar freedom of all competitors; that assumption was conceived as the logical basis for assuring the most rational or economic use of a limited supply of productive resources confronted with a much larger demand.
A closely related argument is also of considerable significance: it has been pointed out that economics is clearly unrealistic if it is content to concentrate upon given and unchanging wants as datum.
If the writer can judge on the basis of conversations he has had with some economists on the problem, he must conclude that the “proportionalist position” is still held quite tenaciously in some quarters.
One provocative conclusion that emerges from this approach is that the rational economic man in his role as consumer will not seek the conventional consumer equilibrium position under normal circumstances.
It is natural to begin the series of illustrations with those theories regarding the rational behavior of private subjects-consumers and firms-under so called “quantity adjustment”.
At some point, presumably, it is advantageous to give up a little of the parsimony and elegance of economic theories about the behavior of consumers, workers, and businessmen, for improvement in ability to explain and predict that behavior.
Private rationality requires that holdings of cash be chosen such that the value of resources saved are equal at the margin to the value of goods and services that the same resources would produce in their best alternative use.
The Canadian Journal of Economics / Revue canadienne d’Economique
Robert Clower
0.730
1 deny that households act “rationally” since rational behavior is now taken to signify maximization of a consistent and transitive function.6 How can these extensive criticisms be reconciled with the fact that the main implication of utility theory-that market demand curves would be negatively inclined-has been consistently verified empirically and found extremely useful in practical problems?
Instead, the following essay will seek to show that even on the assumption of economic rationality, the traditional model of consumer choice may not be tenable.
Zeitschrift für Nationalökonomie / Journal of Economics
Richard E. Quandt
0.722
This analytical statement must be distinguished from the frequently encountered arithmetical statement that a market would behave rationally even if only a few households did, assuming always that the average consumption of other households did not move perversely.
One of our critics states flatly that: “Theory or ‘intuition’ is necessary to specify components of autonomous expenditure,”37 without, of course, specifying what the content of the one theory is that is to give content to the other theory, or how different “intuitions” are to be reconciled.
Here not only are the margins satisfied, but they are satisfied for individuals rather than the collectives of the actual economy, and for individuals whose time-preferences are, as Harrod sees it, rational, giving equal weight to present and future utilities.4 All of this comes from the fact that in his later writing Harrod seeks to explain savings, and to show how rational, individual savings decisions are determined.
Devotees of the theory of rational behaviour find it easy to persuade themselves that there is some magic in working with utility functions and budget constraints that take explicit account of future as well as present alternatives.
Utility analysis does not imply that market demand curves necessarily have sizable elasticities; nevertheless, rational behavior is popularly believed to produce sizable responses in at least some markets.
Yet, if we accept the proposition that in the real world, business and consumers are often motivated by non-economic factors or rather recognize that “real” economic behavior is much more complex than assumed in the conventional model of “rational” economic behavior, then the economist is faced with a dilemma: he can no longer assume a simple profit maximization model and he cannot justify the assumption that any firm always both maximizes the efficiency of any program and automatically minimizes its cost; for assuming the latter would be an error which “…should be taken seriously for it can lead to some wild compromising criteria.
To the extent that rationality for consumers may concur with rationality for agents more generally, a secondary theme that can be abstracted from revealed preference theory is the pursuit of the concept of rational choice.
The expenditure minimization concept of rationality in our highly idealized situation is consistent with models which include risk, uncertainty, growth, or irregularities in consumption behavior.
’4 Ekern and Wilson and 14 An alternative to the forecasting interpretation is to view an incomplete market equilibrium as a rational expectations equilibrium in which consumers use their equilibrium implicit prices to evaluate production plans.
If a rational individual determines his choices in the market for private products and factors in such a way that it will enhance his basic welfare level, it is reasonable to assume that his choices for public goods will also be guided by this consideration.
It is surpassingly convenient for the economist to assume that consumer tastes are “given” and that consumers are “rational,” but the economist chooses so to assume, and whether the resulting theory conforms sufficiently to the real world to be useful in solving economic problems is an important and seldom asked question.
PRESERVATION OF THE RATIONALITY PROPERTIES In this section we examine to what extent the rationality properties of the original demand correspondence are inherited by the composite demand correspondence.
Thus Samuelson’s assumption that the cost of the decision vector chosen is exactly equal to the dget constraint could be called the spend-thrift version of rational behavior and can be inconsistent with the expenditure minimization concept of rational behavior.
Among the 150 closest sentences to the cluster’s centroid, 8% mention the terms ‘rational’ or ‘rationality’
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1 deny that households act “rationally” since rational behavior is now taken to signify maximization of a consistent and transitive function.6 How can these extensive criticisms be reconciled with the fact that the main implication of utility theory-that market demand curves would be negatively inclined-has been consistently verified empirically and found extremely useful in practical problems?
1 As soon as we postulate that the norm relating means to ends is that of intrinsic rationality,2 the maximisation of a utility index is implied, and the foundation stone of economic analysis has been laid.
It is natural to begin the series of illustrations with those theories regarding the rational behavior of private subjects-consumers and firms-under so called “quantity adjustment”.
Instead, the following essay will seek to show that even on the assumption of economic rationality, the traditional model of consumer choice may not be tenable.
Thus, according to Professor Pigou, the freely functioning price-system and rational behaviour on the part of individuals will not lead to an optimum utilization of resources over time.8 This argument has yet to be refuted on a priori grounds, and it is not intended to go into it here.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Gordon K. Goundrey
0.767
A REPLY TO I. KIRZNER GARY S. BECKER Columbia University IN A recent article I argued that many important results of current economic theory do not really depend on rational individual behavior;’ in particular, market demand curves would be negatively inclined not only when households maximize utility but also when they choose impulsively or follow habit.
Utility analysis does not imply that market demand curves necessarily have sizable elasticities; nevertheless, rational behavior is popularly believed to produce sizable responses in at least some markets.
Also, the assumptions of market knowledge and rational behaviour that underlie the doctrine of consumer sovereignty are argued to be not entirely realistic, and merit wants may be created to correct the consequent ” distortion in the preference structure “.
Top sentences (in general) of the cluster’s centroid
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J some recent literature, could contribute to making the theory of utility and demand somewhat more specific and substantial than the general outline on which the theory is usually based today.
Yet, if we accept the proposition that in the real world, business and consumers are often motivated by non-economic factors or rather recognize that “real” economic behavior is much more complex than assumed in the conventional model of “rational” economic behavior, then the economist is faced with a dilemma: he can no longer assume a simple profit maximization model and he cannot justify the assumption that any firm always both maximizes the efficiency of any program and automatically minimizes its cost; for assuming the latter would be an error which “…should be taken seriously for it can lead to some wild compromising criteria.
This assumption is less justified than others; but it provides an introduction, at least, to the more complex problem raised by the presence of many consumers who evaluate the working of the economic system in light of their own utility functions.
Since similar views are stated in the author’s book on utility theory and since his discussion is described as ” adequate ” by the reviewer in this journal and tacitly approved in other reviews,3 it is thought worth while to indicate briefly our objections to his interpretation.
1 deny that households act “rationally” since rational behavior is now taken to signify maximization of a consistent and transitive function.6 How can these extensive criticisms be reconciled with the fact that the main implication of utility theory-that market demand curves would be negatively inclined-has been consistently verified empirically and found extremely useful in practical problems?
As will become clear in the sequel, the great simplification which the concept of “utility” introduced in economic theory was not entirely gratuitous since its general adoption led to many unfounded controversies and also influenced us in refusing to accept some elemental facts because they did not fit in the theoretical scheme.
There can be little doubt-whatever the intent of the author of this theoretical concept-that substantially this course has been actively advocated by Balogh, Schumacher, and kindred spirits.8 III I have maintained the thesis that the central economic problem is the application of scarce means to unlimited wants; that scarcity resolves itself principally into cost to individuals and the uncovered demand resolves itself ultimately into the unsatisfied wants of individuals; and finally, that the basic economic process is thus a weighing of costs to individuals and of utilities or satisfactions to individuals.
Zeitschrift für Nationalökonomie / Journal of Economics
Richard E. Quandt
0.808
At one extreme stands the view, perhaps best associated with the founders of utility theory, that the utility of each product depends solely on consump- * I am very grateful to A. M. Okun, J. Tobin, and J. H. Young for their criticism of earlier drafts of this paper.
In this framework prices are explicitly assumed as given and we avoid the problem, which thus far has not been satisfactorily handled, of relating social surpluses, or consumer utilities, or satisfactions derivable from several commodities.40 This problem would confront us if we were to proceed from the analysis of Section III.
that economic theory is capable of being formulated-consistently with each person acting as an individual utility, or wealth, maximizer without constraints imposed by competitors, and without conventions or taboos about wages or prices-so as to imply shortages, surpluses, unemployment, queues, idle resources, and nonprice rationing with price stability.”
One cannot rigorously demonstrate the law of demand, but rather, from the directly observable fact that demand diminishes with the increase of price we deduce the consequence that the final degrees of utility may each be considered -as far as this phenomenon is concerned-as approximately dependent only on the quantity of the commodity to which it is related.1’0 In the Manuel, however, he showed that the additive utility function leads to conclusions which are contradicted by experience,“’ but defended it as an approximation which was permissible for large categories of expenditure and for small changes in the quantities of substitutes or complements.
Thirty or forty years ago the principle that consumers seek to maximize “utility” was generally accepted as furnishing an adequate explanation of their behavior for purposes of orthodox economic theory.
It is true that we do not wish, as a rule, to receive as much as possible of the kind of goods in which the valuation is made in order to satisfy our ultimate desires, but, whichever ultimate desires - or preferences - about collections of goods we want to satisfy, we can obtain objectively more desirable collections by market exchange, if we originally have at our disposal a larger quantity of the kind of goods in which the valuation is made.
It is surpassingly convenient for the economist to assume that consumer tastes are “given” and that consumers are “rational,” but the economist chooses so to assume, and whether the resulting theory conforms sufficiently to the real world to be useful in solving economic problems is an important and seldom asked question.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
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As will become clear in the sequel, the great simplification which the concept of “utility” introduced in economic theory was not entirely gratuitous since its general adoption led to many unfounded controversies and also influenced us in refusing to accept some elemental facts because they did not fit in the theoretical scheme.
There can be little doubt-whatever the intent of the author of this theoretical concept-that substantially this course has been actively advocated by Balogh, Schumacher, and kindred spirits.8 III I have maintained the thesis that the central economic problem is the application of scarce means to unlimited wants; that scarcity resolves itself principally into cost to individuals and the uncovered demand resolves itself ultimately into the unsatisfied wants of individuals; and finally, that the basic economic process is thus a weighing of costs to individuals and of utilities or satisfactions to individuals.
At one extreme stands the view, perhaps best associated with the founders of utility theory, that the utility of each product depends solely on consump- * I am very grateful to A. M. Okun, J. Tobin, and J. H. Young for their criticism of earlier drafts of this paper.
In this framework prices are explicitly assumed as given and we avoid the problem, which thus far has not been satisfactorily handled, of relating social surpluses, or consumer utilities, or satisfactions derivable from several commodities.40 This problem would confront us if we were to proceed from the analysis of Section III.
One cannot rigorously demonstrate the law of demand, but rather, from the directly observable fact that demand diminishes with the increase of price we deduce the consequence that the final degrees of utility may each be considered -as far as this phenomenon is concerned-as approximately dependent only on the quantity of the commodity to which it is related.1’0 In the Manuel, however, he showed that the additive utility function leads to conclusions which are contradicted by experience,“’ but defended it as an approximation which was permissible for large categories of expenditure and for small changes in the quantities of substitutes or complements.
Thirty or forty years ago the principle that consumers seek to maximize “utility” was generally accepted as furnishing an adequate explanation of their behavior for purposes of orthodox economic theory.
I shall then go on to examine some ways in which we can relax the assumptions, so as to build up a utility theory which is not confined within quite such narrow bounds.
The ideal action is upon aggregate demand, not upon the relative sizes of specific lines of expenditure, for steps of the latter sort, if desirable, do not in general become so or cease to be so in response to inflation or deflation.3 The prevalent sense that it is desperately difficult to bring men to take advantage of the means to enjoy goods is to be felt in the welcome according to allocation-influencing devices.
All that is assumed is that man has a tendency to look at value from the pocket-book viewpoint, that he has a tendency to seek maximization of a bundle of utilities, and, given scarcity of resources and wherewithal, that in the end he must somehow act in conformance with an economizing principle.
It is true that in his reformulation Mr. Little manages to dispense with some of the concepts and axioms which were formerly employed; but this economy is made possible not as a result of his change of method but rather because he is not concerned with providing a subjective explanation of consumers’ behaviour.2 If it is thought desirable to give some such explanation, then, of course, use must be made of the subjective concepts ‘preference’ and ‘indifference’ and of the axiom that the consumer always chooses what he prefers.
J some recent literature, could contribute to making the theory of utility and demand somewhat more specific and substantial than the general outline on which the theory is usually based today.
Since similar views are stated in the author’s book on utility theory and since his discussion is described as ” adequate ” by the reviewer in this journal and tacitly approved in other reviews,3 it is thought worth while to indicate briefly our objections to his interpretation.
1 deny that households act “rationally” since rational behavior is now taken to signify maximization of a consistent and transitive function.6 How can these extensive criticisms be reconciled with the fact that the main implication of utility theory-that market demand curves would be negatively inclined-has been consistently verified empirically and found extremely useful in practical problems?
Zeitschrift für Nationalökonomie / Journal of Economics
Richard E. Quandt
0.808
It is true that we do not wish, as a rule, to receive as much as possible of the kind of goods in which the valuation is made in order to satisfy our ultimate desires, but, whichever ultimate desires - or preferences - about collections of goods we want to satisfy, we can obtain objectively more desirable collections by market exchange, if we originally have at our disposal a larger quantity of the kind of goods in which the valuation is made.
We have not claimed any precise knowledge of individuals’ utility functions but have concluded that utility must be a function of many desired items, that there are trade-off or substitution possibilities among these items, and that, if one becomes more expensive relative to others, less of that item will be demanded.
In this theory utility does not necessarily depend on the quantities consumed themselves; it may also depend on certain intermediate entities which themselves are functions of the quantities consumed, or of still further entities of the same kind.
The aim is to provide a bridge between the laity and the specialists in utility theory and to do it as informally as possible without violating the core of the arguments; except in the eyes of a purist, laying a rude hand here and there does not invariably lead to loss of virtue.
The consumer’s ” welfare ” may be said to depend not only on the level of prices he must pay for goods within a particular commodity group but also on the choice which is available to him within that group.
That the consumption of some individuals creates externalities, whether psychic or objectively measurable, implies only that a compensation scheme or public action is necessary if the consumption is to occur at the optimal level4.
By making small changes in the assumption of equal relative valuation of different types of consumption, some of the binding constraints can be made inactive, viz.
Yet, if we accept the proposition that in the real world, business and consumers are often motivated by non-economic factors or rather recognize that “real” economic behavior is much more complex than assumed in the conventional model of “rational” economic behavior, then the economist is faced with a dilemma: he can no longer assume a simple profit maximization model and he cannot justify the assumption that any firm always both maximizes the efficiency of any program and automatically minimizes its cost; for assuming the latter would be an error which “…should be taken seriously for it can lead to some wild compromising criteria.
This assumption is less justified than others; but it provides an introduction, at least, to the more complex problem raised by the presence of many consumers who evaluate the working of the economic system in light of their own utility functions.
that economic theory is capable of being formulated-consistently with each person acting as an individual utility, or wealth, maximizer without constraints imposed by competitors, and without conventions or taboos about wages or prices-so as to imply shortages, surpluses, unemployment, queues, idle resources, and nonprice rationing with price stability.”
It is surpassingly convenient for the economist to assume that consumer tastes are “given” and that consumers are “rational,” but the economist chooses so to assume, and whether the resulting theory conforms sufficiently to the real world to be useful in solving economic problems is an important and seldom asked question.
The restated theory has many important implications for the structure of preferences over commodities, implications which do not follow from the currently orthodox “indifferent” approach.
Zeitschrift für Nationalökonomie / Journal of Economics
J. Huston McCulloch
0.790
Concluding Remarks I began this paper by casting doubt on the dictum, fundamental to normative economics, that each man knows his own interest best, or put more formally, that his revealed choices identify the combination of goods which, subject to institutional and budgetary constraints, maximises his utility.
The fact that several hypothèses about the determining factors of con sumption and about the mathematical form of the consumption function compete side by side is not unique to this branch of économies.
The cluster gathers 680 sentences from our corpus. It represents 0.42% of all the sentences selected over the whole period.
The community exists from 1950 to 1959.
The most recurring authors are Rutledge Vining (11 sentences), Campbell R. McConnell (8 sentences), Ben W. Lewis (7 sentences), Paul A. Samuelson (7 sentences), Harvey M. Wagner (6 sentences), Herbert Johnston (6 sentences), Trygve Haavelmo (6 sentences), A. L. Macfie (5 sentences), D. Gale Johnson (5 sentences), Frank H. Knight (5 sentences).
The most recurring journals are The American Economic Review (127 sentences), Journal of Farm Economics (95 sentences), The Quarterly Journal of Economics (59 sentences), Southern Economic Journal (50 sentences), The Economic Journal (44 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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The present writer’s inclination is to question the advisability of seeking solutions possessing the required equilibrium properties but sacrificing the rationality of behavior.
The problem of rational policy is a complex one of balancing several values, including resource allocation, income allocation, security, progress, and social tension, against one another.
Now there is a danger that this purely logical problem of drawing appropriate conclusions from given premisses may be regarded, perhaps implicitly, as an adequate description of the actual problem with which our economic system is concerned and from which it derives its rationale.
Potentialities of a somewhat similar nature could hardly be ignored with regard to the time-honored controversy between conceptual and operational economic thinking.
Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and Theoretical Economics
THEO SURANYI-UNGER
0.695
“26 As for the”unpredictability” of human behavior 23 To the present writer it is at least logically feasible that the economizing problem could be reversed.
Doubts whether the economist can establish such principles began, however, to arise at the beginning of this century, when we became aware of the insoluble difficulties that beset the economist when he tries to measure and compare different people’s utility.
Economic controversies can be more readily understood and economic knowledge furthered if we decide at the outset whether the author of a proposal is attempting to construct an ideal type of economic system or whether he is formulating a program for adoption in the world as it is.
“The Economic Problem” is not confined to static division; it does not reflect an assumption that product is fixed in amount and that economic alternatives relate only to kinds and direction.
Among the 50 closest sentences to the cluster’s centroid, 4% mention the terms ‘rational’ or ‘rationality’
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Now there is a danger that this purely logical problem of drawing appropriate conclusions from given premisses may be regarded, perhaps implicitly, as an adequate description of the actual problem with which our economic system is concerned and from which it derives its rationale.
The present writer’s inclination is to question the advisability of seeking solutions possessing the required equilibrium properties but sacrificing the rationality of behavior.
Doubts whether the economist can establish such principles began, however, to arise at the beginning of this century, when we became aware of the insoluble difficulties that beset the economist when he tries to measure and compare different people’s utility.
Economic controversies can be more readily understood and economic knowledge furthered if we decide at the outset whether the author of a proposal is attempting to construct an ideal type of economic system or whether he is formulating a program for adoption in the world as it is.
VII There is much to be done before there is an economics which is as basically problem-solving as was the economics of Adam Smith, Ricardo, and Mill, or for that matter Marshall’s, or Wicksell’s, each in its setting.
A thorough discussion of these problems among both ” theoretical ” and ” applied ” economists may considerably contribute to the elucidation of the issues involved, and perhaps lead towards a substantial measure of agreement on answers to these questions.
It is a subject that is both very interesting and very difficult: interesting because it deals with the heart of our economic science, the selection of alternatives to satisfy wants; and difficult because it involves familiarity with a number of disciplines- economics, statistics, philosophy, sociology, and psychology.
However, as we move into economic problems involving questions of choice, it should be recognized that a different set of principles is involved than in dealing with the physical sciences and problems of use.
To recognize this fact raises many more problems about the teaching of economics than it settles, but at least it helps us to identify the issues and the considerations.
The cluster gathers 2212 sentences from our corpus. It represents 1.37% of all the sentences selected over the whole period.
The community exists from 1950 to 1979.
The most recurring authors are Edward H. Chamberlin (26 sentences), G. B. Richardson (19 sentences), James M. Buchanan (18 sentences), Kenneth J. Arrow (16 sentences), J. Hirshleifer (14 sentences), Jesse W. Markham (13 sentences), Shorey Peterson (13 sentences), Stephen H. Sosnick (13 sentences), Warren J. Samuels (13 sentences), Israel M. Kirzner (12 sentences).
The most recurring journals are The American Economic Review (339 sentences), The Quarterly Journal of Economics (184 sentences), Journal of Political Economy (141 sentences), Journal of Economic Issues (113 sentences), The Journal of Finance (102 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1950-1959
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monopolistic_competition
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Top terms 1960-1969
Token
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perfect_competition
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monopolistic
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market_mechanism
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Top terms 1970-1979
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externalities
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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The market economizes on the non-rational component of behavior, but it by no means eliminates the non-rational component.
This new concept of rational behavior allows Neumann-Morgenstern to steer clear of the traps into which the discussion, especially of duopoly, has fallen before.
In turn, the rational-expectations hypothesis leads to a theory of “efficient markets,” applicable to active auction markets in securities and commodities.
The often implied expectation of a necessary world trend toward free competition has worn thinner and thinner; the traditional identification of rational choices with price decisions on a free market has lost ground; what is more, the actual range of nonrational behavior has been more widely explored; and collective action or social policy is ordinarily no longer considered a mere copy-and an undesirable one at that-of individual action.
One notices this in at least three areas of economiiic thought: in the theory of the market, in the theory of development, and in the theory of decision making, both public and private.
Competition in the proper psychological meaning is only one of many irrational motives which have both a real and a proper place in individual behavior in markets-not to mention errors of manifold kinds which are inevitably committed.
Generically, in the model considered here, a rational expectations equilibrium reveals to all traders the information possessed by all of the traders taken together.3 Seen in a broader context, this property of equilibrium might cast doubt on the incentives for a trader to obtain information about the environment prior to entering the market, provided he could count on other traders obtaining the same information, which would then be revealed by market prices.
It is doubtful whether his reasonable price can be identified with a rational price from the viewpoint of pure and perfect competition theory.63 His analysis of market conduct is concentrated on one given market.
One common bias even in contemporary research is the more or less explicit assumption of market rationality and optimality, while actual markets are becoming less and less perfect and in some areas disappearing altogether.
Although this view departs considerably from standard notions of market equilibrium, in the Hung arian context it is a rational approach to operating the economy.
It challenges the principle that more is better and opens up the question of what sort of wants we should generate, what sort of men we should make.12 It is obvious that the criterion of market efficiency involves a sort of ego-centric myopia of which one should be wary in any serious discussion of normative economics.
The venerable issues of the role of competition and the rationality of compensating balances are placed in a new perspective in sections V and VI respectively.
As reference to the literature cited earlier in this section will verify, our predictions of the operations of markets and of the economy are sensitive to our assumptions about mechanisms at the level of decision processes.
It has been argued that these models cannot explain the persistence of unemployment, and they are therefore an inaccurate guide to the effects of policy.4 Although the existence of rational expectations in all markets in the economy can be questioned, it seems sensible that behavior in speculativeauction markets, such as those in which bonds and common stocks are traded, would reflect available information.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
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This new concept of rational behavior allows Neumann-Morgenstern to steer clear of the traps into which the discussion, especially of duopoly, has fallen before.
The often implied expectation of a necessary world trend toward free competition has worn thinner and thinner; the traditional identification of rational choices with price decisions on a free market has lost ground; what is more, the actual range of nonrational behavior has been more widely explored; and collective action or social policy is ordinarily no longer considered a mere copy-and an undesirable one at that-of individual action.
Competition in the proper psychological meaning is only one of many irrational motives which have both a real and a proper place in individual behavior in markets-not to mention errors of manifold kinds which are inevitably committed.
The implication is that if consumers acted rationally and with full knowledge the diversity of products would be reduced to a degree compatible with pure competition with no loss in aggregate satisfaction and with an increase in productive efficiency.
This alone seems to me a very reasonable ground for challenging the validity of monopolistic competition, but, as indicated, I am quite prepared to trust to the measure of rationality which I find to be possessed by ordinary housewives.
When an investigator sets himself to look into “imperfections,” he has apparently begun to question the traditional assumptions of perfect competition, perfect mobility of the factors, and perfect economic rationality on the part of decision makers.
If he is to refute Mr. Andrews, Professor Robinson must show, not that the normal cost pricing rule constitutes a rational code of behaviour for business men-Mr. Andrews would agree with him only too readily here-but that the imperfect competition theories do so.
Accordingly, bilateral monopolistic rationalization appears to offer itself here as a more promising explanatory hypothesis than the Galbraithian doctrine of countervailing power.’
I then believed it was possible to have a coherent though abstract doctrine of economics in which competition was the only dominant force; and I then defined ‘normal’ as that which the undisturbed play of competition would bring about: and now I regard that position as untenable from an abstract as well as from a practical point of view “.
In other words, it is of the essence of the competitive system that the profit opportunities open to one seller depend on the actions proposed by others, so that, for example, if A, B, C, … are all equally well placed to supply a given market, then A cannot rationally decide upon a particular level of output without some knowledge of what B, C, .
It is my contention that an explanation of intense competition cannot be satisfactorily given unless an assumption equivalent to profit-maximizing behavior is made.
One notices this in at least three areas of economiiic thought: in the theory of the market, in the theory of development, and in the theory of decision making, both public and private.
To say that private enterprise is inefficient because indivisibilities and imperfect knowledge are part of life, or because people are susceptible to the human weaknesses subsumed in the term moral hazards, or because marketing commodity-options is not costless, or because persons are risk-averse, is to say little more than that the competitive equilibrium would be different if these were not the facts of life.
If one makes such assumptions at all, he should make them explicitly, not cloak them in vague concepts like ‘market perfection’ or ‘rational behaviour’.
Postscript I wish to repeat here what has been suggested above in several places: that the failure of the market to insure against uncertainties has created many social institutions in which the usual assumptions of the market are to some extent contradicted.
It follows then, that Buchanan’s quarrel is not, or ought not to be, with Robbins’ own emphasis on allocation and choice at all, but is properly to be restricted to that literature that is concerned, in the name of economics, with the attainment of efficient solutions, and that evaluates the market primarily with respect to its efficiency as an “allocative mechanism.”
The inherent incompatibility between the interests of the consumer and those of the producer, operating as rational decisionmaking economic units, was mitigated by the basic similarity of motivations of both sides.
First of all, note that the sharp difference in result as between the market and the political solution emerges only if the self-interest assumption about human motivation is consistently adopted and applied.
Severe critics of the enterprise system idealized by our antitrust program may be satisfied to substitute for rational man or rational firm a rational group point of view or rational programming by a state planning commission.
Not the least among the many achievements of economic science has been the ability to erect a rigorous analytical system on the principle of competition a principle so basic to economic reasoning that not even such powerful yet diverse critics of orthodox theory as Marx and Keynes could avoid relying upon it -without ever clearly specifying what, exactly, competition is.
113-14; italics min market mechanism will not, in the long run, extend the ” range of choice ” farther than would happen in the absence of interference.’
In turn, the rational-expectations hypothesis leads to a theory of “efficient markets,” applicable to active auction markets in securities and commodities.
Generically, in the model considered here, a rational expectations equilibrium reveals to all traders the information possessed by all of the traders taken together.3 Seen in a broader context, this property of equilibrium might cast doubt on the incentives for a trader to obtain information about the environment prior to entering the market, provided he could count on other traders obtaining the same information, which would then be revealed by market prices.
It is doubtful whether his reasonable price can be identified with a rational price from the viewpoint of pure and perfect competition theory.63 His analysis of market conduct is concentrated on one given market.
One common bias even in contemporary research is the more or less explicit assumption of market rationality and optimality, while actual markets are becoming less and less perfect and in some areas disappearing altogether.
Although this view departs considerably from standard notions of market equilibrium, in the Hung arian context it is a rational approach to operating the economy.
It challenges the principle that more is better and opens up the question of what sort of wants we should generate, what sort of men we should make.12 It is obvious that the criterion of market efficiency involves a sort of ego-centric myopia of which one should be wary in any serious discussion of normative economics.
The venerable issues of the role of competition and the rationality of compensating balances are placed in a new perspective in sections V and VI respectively.
Among the 150 closest sentences to the cluster’s centroid, 4% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The venerable issues of the role of competition and the rationality of compensating balances are placed in a new perspective in sections V and VI respectively.
It is doubtful whether his reasonable price can be identified with a rational price from the viewpoint of pure and perfect competition theory.63 His analysis of market conduct is concentrated on one given market.
One common bias even in contemporary research is the more or less explicit assumption of market rationality and optimality, while actual markets are becoming less and less perfect and in some areas disappearing altogether.
In other words, it is of the essence of the competitive system that the profit opportunities open to one seller depend on the actions proposed by others, so that, for example, if A, B, C, … are all equally well placed to supply a given market, then A cannot rationally decide upon a particular level of output without some knowledge of what B, C, .
The often implied expectation of a necessary world trend toward free competition has worn thinner and thinner; the traditional identification of rational choices with price decisions on a free market has lost ground; what is more, the actual range of nonrational behavior has been more widely explored; and collective action or social policy is ordinarily no longer considered a mere copy-and an undesirable one at that-of individual action.
It would be rather surprising if the institution of the so-called ‘common markets’ did not bring theoreticians to insist on some aspects of reality which the theory of monopolistic competition tends to leave in the dark.
When an economic theorist attempts to analyze any market, he encounters simultaneously two extremely different worlds whose aims are often in conflict with each other, yet these worlds must be brought into mutual adjustment so that trade may take place.
Not the least among the many achievements of economic science has been the ability to erect a rigorous analytical system on the principle of competition a principle so basic to economic reasoning that not even such powerful yet diverse critics of orthodox theory as Marx and Keynes could avoid relying upon it -without ever clearly specifying what, exactly, competition is.
The venerable issues of the role of competition and the rationality of compensating balances are placed in a new perspective in sections V and VI respectively.
This statement will have to be qualified in Sections IV and V of this paper, in which we investigate the implications of various assumptions about markets and behavior.
I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it.9 Certainly this process is not necessarily conscious; nor is it uniformly successful in approaching more closely to optimality when the entire range of consequences is considered.
As no one knows better than the author of The Worldly Philosophers, our profession’s obsession with “the market” goes back at least to the time of Thomas Aquinas and his principle of “just price,” and has persisted at least to the time of Richard Nixon and his abhorrence of “controls.”
One notices this in at least three areas of economiiic thought: in the theory of the market, in the theory of development, and in the theory of decision making, both public and private.
To the degree that that effort is successful, it seems reasonable to predict that the idea of the market and that of competition may increasingly come to be separately identified, and competition itself may be, once again, what it was at the hands of Adam Smith: a disequilibrium, behavioral concept which is meaningful and relevant in terms of the contemporary pattern of economic life.
Whether or not this arithmetic is always completely borne out by the facts, it is clear that, so far as competition does consist in giving the consumer more for his money, the main issue is not between A and B, but between B and the public, and that the interest of the public is paramount.22 To be sure, this “arithmetic” generally is borne out by the facts, but by posing the issue directly, Clark and Commons open up a wider range of situations in which the presumption for free competition might be called into question.
It is doubtful whether his reasonable price can be identified with a rational price from the viewpoint of pure and perfect competition theory.63 His analysis of market conduct is concentrated on one given market.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Competition plays an indispensable role in a free market economy; to the extent that the pressures of competition are lessened and diffused by concentrates, economic decisions are left to a handful of persons who are not responsible by ballot, contract or market to those whose lives are substantially conditioned by the decisions.
REVIEW In other words, although useful results are sometimes obtained by assuming the existence of intense competition, the assumption itself is no more “realistic” nor “intellectually more modest”’3 than the assumption that individual firms try to maximize their profits.
market, then, have this peculiarity that they occur only when both parties, though motivated by contrary impulses, think they can gain from a reciprocal agreement: hence the principle of the natural harmony of diverging interests as immutably presiding over the relations of the market.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Léon Dion
0.797
Competition in the proper psychological meaning is only one of many irrational motives which have both a real and a proper place in individual behavior in markets-not to mention errors of manifold kinds which are inevitably committed.
The exposition of the fundamental features of a ‘purely competitive’ market, especially in the elementary statements of economic doctrine which have most influenced general thinking on these matters, proceed in terms of a great flexibility of market price, in accordance with the shifting balance between demand and supply.
I believe that this is only one of numerous ways in which the subject may be presented, but I hope it is one in which the theory emerges more clearly as a general one, designed to replace that of pure competition as a basis for analysing the whole economy.
I shall argue that, apart f rom such pedagogic merit as they may have, the theories of monopolistic and imperfect competition have not proved to be useful formulations, in the sense that Marshall’s formulations were useful; that they have not directed attention toward significant and observable relationships.
The classical economists did not commit the error of regarding “perfect” competition as the most beneficial state of affairs; for they did not mistake the presentation of a theoretical model, useful as an intellectual exercise in economic analysis, for a norm of public policy.
VI The conclusion to be drawn from the particular form of this analysis is that there is within imperfect competition an area, created by the form of consumer demand, which is not amenable to adjustment in the direction of “better” allocative patterns of the economy.
In other words, it is of the essence of the competitive system that the profit opportunities open to one seller depend on the actions proposed by others, so that, for example, if A, B, C, … are all equally well placed to supply a given market, then A cannot rationally decide upon a particular level of output without some knowledge of what B, C, .
It would be rather surprising if the institution of the so-called ‘common markets’ did not bring theoreticians to insist on some aspects of reality which the theory of monopolistic competition tends to leave in the dark.
Not the least among the many achievements of economic science has been the ability to erect a rigorous analytical system on the principle of competition a principle so basic to economic reasoning that not even such powerful yet diverse critics of orthodox theory as Marx and Keynes could avoid relying upon it -without ever clearly specifying what, exactly, competition is.
This statement will have to be qualified in Sections IV and V of this paper, in which we investigate the implications of various assumptions about markets and behavior.
I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it.9 Certainly this process is not necessarily conscious; nor is it uniformly successful in approaching more closely to optimality when the entire range of consequences is considered.
One notices this in at least three areas of economiiic thought: in the theory of the market, in the theory of development, and in the theory of decision making, both public and private.
To the degree that that effort is successful, it seems reasonable to predict that the idea of the market and that of competition may increasingly come to be separately identified, and competition itself may be, once again, what it was at the hands of Adam Smith: a disequilibrium, behavioral concept which is meaningful and relevant in terms of the contemporary pattern of economic life.
Now the fact that an economic model in some degree involves imperfect competition does not necessarily imply that the concepts of competitive markets give little insight into the behavior of relative prices, resources allocations, and profitabilities.
In this excursion into market processes, among the most stimulating and provocative was that of J. M. Clark, and his paradoxical conclusion that “the retarded action of the market which permits different prices to prevail at the same time is not really an ‘imperfection,’ as theoretical economics has been inclined to regard it.
When an economic theorist attempts to analyze any market, he encounters simultaneously two extremely different worlds whose aims are often in conflict with each other, yet these worlds must be brought into mutual adjustment so that trade may take place.
The venerable issues of the role of competition and the rationality of compensating balances are placed in a new perspective in sections V and VI respectively.
As no one knows better than the author of The Worldly Philosophers, our profession’s obsession with “the market” goes back at least to the time of Thomas Aquinas and his principle of “just price,” and has persisted at least to the time of Richard Nixon and his abhorrence of “controls.”
Whether or not this arithmetic is always completely borne out by the facts, it is clear that, so far as competition does consist in giving the consumer more for his money, the main issue is not between A and B, but between B and the public, and that the interest of the public is paramount.22 To be sure, this “arithmetic” generally is borne out by the facts, but by posing the issue directly, Clark and Commons open up a wider range of situations in which the presumption for free competition might be called into question.
It is doubtful whether his reasonable price can be identified with a rational price from the viewpoint of pure and perfect competition theory.63 His analysis of market conduct is concentrated on one given market.
However, in its attempt to explain the mechanisms of market adjustment and equilibrium under conditions of perfect competition, conventional economic think ing has not found it appropriate to pay enough attention to such factors as economic and political power, group behavior, non-economic motivations, etc.
One common bias even in contemporary research is the more or less explicit assumption of market rationality and optimality, while actual markets are becoming less and less perfect and in some areas disappearing altogether.
Economists in every business have had to face the fact that concepts must be developed to analyze the imperfections of markets, because es sentially no pure free markets exist in our economy.
The cluster gathers 3318 sentences from our corpus. It represents 2.05% of all the sentences selected over the whole period.
The community exists from 1950 to 1979.
The most recurring authors are James M. Buchanan (67 sentences), Kenneth J. Arrow (49 sentences), Herbert A. Simon (34 sentences), E. J. Mishan (21 sentences), Nicholas Georgescu-Roegen (18 sentences), A. L. Macfie (17 sentences), Jerome Rothenberg (17 sentences), Amartya Sen (16 sentences), Hans G. Herzberger (16 sentences), Martin Shubik (16 sentences).
The most recurring journals are The American Economic Review (378 sentences), Journal of Political Economy (240 sentences), The Quarterly Journal of Economics (222 sentences), Econometrica (193 sentences), The Economic Journal (189 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
social_choice
0.0016851
decision_maker
0.0011660
maker
0.0009011
decisions
0.0008176
rational_choice
0.0007626
decision
0.0006615
decision_makers
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optimal
0.0006228
voting
0.0005912
choice_functions
0.0005669
choice_process
0.0005633
makers
0.0005554
collective_choice
0.0005289
choices
0.0005102
preferences
0.0005030
economic_choice
0.0004846
individual_choice
0.0004757
collective_decision
0.0004567
collective_rationality
0.0004032
economic_decision
0.0004003
Top TF-IDF terms describing the community for each time window
Top terms 1950-1959
Token
TF-IDF
market_choice
0.0020664
rational_choice
0.0010812
individual_choice
0.0010782
involving_risk
0.0010758
social_choice
0.0009999
voting
0.0009852
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0.0009765
economic_choice
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orderings
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0.0009282
neumann
0.0009191
decision_taking
0.0008973
economic_assumption
0.0008973
intransitivity
0.0008973
decision
0.0008649
Top terms 1960-1969
Token
TF-IDF
decision
0.0014086
social_choice
0.0013389
decision_maker
0.0011942
maker
0.0009112
judgments
0.0007853
individual_values
0.0007763
choice_process
0.0006876
trade_offs
0.0006869
decisions
0.0006842
economic_considerations
0.0006668
economic_choice
0.0006571
voting
0.0006523
social_decision
0.0006028
offs
0.0005925
political_considerations
0.0005879
Top terms 1970-1979
Token
TF-IDF
social_choice
0.0027594
decision
0.0014052
collective_rationality
0.0011802
decision_maker
0.0010599
collective_choice
0.0010523
voting
0.0010470
rational_choice
0.0010064
choice_functions
0.0009714
decision_processes
0.0009617
public_choice
0.0009006
maker
0.0008491
decision_makers
0.0008413
optimal
0.0007997
individual_choice
0.0007244
collective_decision
0.0007240
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
The study of economic choice is very often the uncovering of interesting characteristics common to rational behavior.
The rational choice which plans the achievement of a ” revenue “, by the disposition of resources, at a” cost” in some sense, virtually disappears from view, or becomes merged in the actual disposition of resources and the actual achievement of the actual ” revenue “.
The fact that decisions are so frequently taken in this sort of way is generally regarded in the neo-classical tradition of economic theory, in which knowledge is assumed to be costless, as a reflection of the irrationality, or gullibility-cum-rapacity, of man in a capitalist economic system: it is on the contrary a manifestation of rationality in a situation in which the decisions that have to be taken are increasingly numerous, multiplying as incomes rise, while time is short and increasingly valuable.
Such decisions should not be made upon economic grounds alone, but clarification of our thinking on the economics of these relationships is an important part of rational decision-making.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
M. J. Bowman
0.774
If rationality in individual behavior is considered a desirable feature of a choice process,23 there would appear to be several reasons for claiming that market choice should be preferred.
POSTULATES OF RATIONALITY In this section we present the postulates which we consider descriptive of a rational approach to the problem of selecting a strategy.
Although the objection by many non-economists that the theory of choice assumes rationality is not well founded,3 it is difficult to distinguish operationally between irrational choices and poorly informed ones, and the new approach to the theory of choice does give appropriate recognition to the investment in and costly accumulation of information.
;2 “Basically, for Professor Hicks, as for Jevons and Marshall, economic decisions are made by an abstract calculating machine”;3 “I find myself continuing to believe … that, whatever the origin of the want, when it rises to consciousness, it is subject to a process which we call rational, when the human agent decides .
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. Reinold Noyes
0.769
I shall have more to say later about the positive case for a descriptive theory of bounded rationality, but I would like to turn first to another territory within economic science that has gained rapidly in population since World War II, the domain of normative decision theory.
Within this framework we can accommodate both the rational elements in choice, so much emphasized by economics, and the nonrational elements to which psychologists and sociologists often prefer to call attention.
We shall explore possible ways of formulating the process of rational choice in situations where we wish to take explicit account of the “internal” as well as the “external” constraints that define the problem of rationality for the organism.
Consistency, Rationality and Collective Choice GEORGES BORDES University of Bordeaux 1 Laboratoire d’Analyse et de Recherche economique Though they are related, ” consistency ” and ” rationality ” are different concepts.
Many of these decisions cannot be taken solely, or even mainly, on the basis of economic reasoning, as they are bound up with the larger strategy of economic planning, and hence with value judg?
Such decisions are of course founded on the calculations of the effects and efforts they involve, but every rational decision is based on such calculations and this is not a specific feature of the market economy.
It is not very long since economists believed that there was a unique ” natural ” choice in which individual interests converged and which could be brought to light by the application of pure reason.
The behavior of the decision-maker, in making choices among alternative courses of action, is the crucial factor in the economic unit in determining what “has” happened in a positive sense as well as in determining what “should” happen in a normative sense.
I March 1979 On the Explanation of Rules Using Rational Choice Models Alexander James Field Methodological debates in economics have a reputation for sterility based on their pleasant contribution to casual conversation and their apparent lack of any visible impact on the actual practice of the discipline.1 This reputation naturally discourages the thoughtful individual from making an additional contribution to the literature in this area.
If rationality in individual behavior is considered a desirable feature of a choice process,23 there would appear to be several reasons for claiming that market choice should be preferred.
POSTULATES OF RATIONALITY In this section we present the postulates which we consider descriptive of a rational approach to the problem of selecting a strategy.
;2 “Basically, for Professor Hicks, as for Jevons and Marshall, economic decisions are made by an abstract calculating machine”;3 “I find myself continuing to believe … that, whatever the origin of the want, when it rises to consciousness, it is subject to a process which we call rational, when the human agent decides .
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
C. Reinold Noyes
0.769
Within this framework we can accommodate both the rational elements in choice, so much emphasized by economics, and the nonrational elements to which psychologists and sociologists often prefer to call attention.
We shall explore possible ways of formulating the process of rational choice in situations where we wish to take explicit account of the “internal” as well as the “external” constraints that define the problem of rationality for the organism.
Many of these decisions cannot be taken solely, or even mainly, on the basis of economic reasoning, as they are bound up with the larger strategy of economic planning, and hence with value judg?
It is not very long since economists believed that there was a unique ” natural ” choice in which individual interests converged and which could be brought to light by the application of pure reason.
The behavior of the decision-maker, in making choices among alternative courses of action, is the crucial factor in the economic unit in determining what “has” happened in a positive sense as well as in determining what “should” happen in a normative sense.
Whether our interests lie in the normative or in the descriptive aspects of rational choice, the construction of models of this kind should prove instructive.
When the gains from correct decisions and the burden of mistaken ones both fall upon those interests actually making the decisions, motivations toward economic rationality should be stronger.
The rational choice which plans the achievement of a ” revenue “, by the disposition of resources, at a” cost” in some sense, virtually disappears from view, or becomes merged in the actual disposition of resources and the actual achievement of the actual ” revenue “.
The fact that decisions are so frequently taken in this sort of way is generally regarded in the neo-classical tradition of economic theory, in which knowledge is assumed to be costless, as a reflection of the irrationality, or gullibility-cum-rapacity, of man in a capitalist economic system: it is on the contrary a manifestation of rationality in a situation in which the decisions that have to be taken are increasingly numerous, multiplying as incomes rise, while time is short and increasingly valuable.
Such decisions should not be made upon economic grounds alone, but clarification of our thinking on the economics of these relationships is an important part of rational decision-making.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
M. J. Bowman
0.774
Such decisions are of course founded on the calculations of the effects and efforts they involve, but every rational decision is based on such calculations and this is not a specific feature of the market economy.
Labor costs, the rationality of substituting labour by machinery, productivity, optimal location of plants and an indefinite number of other decisions can but be assessed and valued in the light of actual conditions in a state; but without their being rationally assessed final decisions or consultations about them, a precondition for partnership, are hardly imaginable.
THE DELIBERATENESS OF ECONOMIC CHOICES’ ELDON D. SMITH University of Kentucky In the investigation of any new subject-matter area, doubts usually emerge regarding the adequacy of the theoretical framework employed.
Although the objection by many non-economists that the theory of choice assumes rationality is not well founded,3 it is difficult to distinguish operationally between irrational choices and poorly informed ones, and the new approach to the theory of choice does give appropriate recognition to the investment in and costly accumulation of information.
I shall have more to say later about the positive case for a descriptive theory of bounded rationality, but I would like to turn first to another territory within economic science that has gained rapidly in population since World War II, the domain of normative decision theory.
Consistency, Rationality and Collective Choice GEORGES BORDES University of Bordeaux 1 Laboratoire d’Analyse et de Recherche economique Though they are related, ” consistency ” and ” rationality ” are different concepts.
I March 1979 On the Explanation of Rules Using Rational Choice Models Alexander James Field Methodological debates in economics have a reputation for sterility based on their pleasant contribution to casual conversation and their apparent lack of any visible impact on the actual practice of the discipline.1 This reputation naturally discourages the thoughtful individual from making an additional contribution to the literature in this area.
Though that decision is by and large a rational economic process, its rationality is based on considerations usually associated with the theory of monopolistic competition.”
The importation of these theories of the processes of choice into economics could provide immense help in deepening our understanding of the dynamics of rationality, and of the influences upon choice of the institutional structure within which it takes place.
While the theoretical framework of the essay is comparatively crude and while the argument is only developed for cases in which the objective function is quadratic after restrictions are taken into account, patterns emerge which are helpful from a prescriptive point of view and which also explain the rationality of actual behaviour which might otherwise appear to be irrational e.g., the decision-maker who has predictive ability but does not adjust to his short-term predictions may well be acting rationally.
The Possibility of Rational Social Choice in an Economy Martin J. Bailey University of Maryland This paper examines the implications of an error or oversight in the statement and proof of Arrow’s celebrated General Possibility Theorem.
Whatever the future success may be of attempts to explain the characteristics of decision processes, in economic or noneconomic terms,9 the branches of economic theory that disregard processes entirely will- if they continue to play a role in the discipline- continue to require some defense against the charge of “unrealism.”
Among the 150 closest sentences to the cluster’s centroid, 19.33% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
These decisions are certainly not to be made on purely economic grounds; and there is even some doubt whether they can be made rationally at all.32 But certainly “marginal” choices have to be made here and, while economics is obviously relevant, equilibrium analysis does an inadequate job of formulating the desirable social norms.
Whether our interests lie in the normative or in the descriptive aspects of rational choice, the construction of models of this kind should prove instructive.
The fact that decisions are so frequently taken in this sort of way is generally regarded in the neo-classical tradition of economic theory, in which knowledge is assumed to be costless, as a reflection of the irrationality, or gullibility-cum-rapacity, of man in a capitalist economic system: it is on the contrary a manifestation of rationality in a situation in which the decisions that have to be taken are increasingly numerous, multiplying as incomes rise, while time is short and increasingly valuable.
If rationality in individual behavior is considered a desirable feature of a choice process,23 there would appear to be several reasons for claiming that market choice should be preferred.
Although the objection by many non-economists that the theory of choice assumes rationality is not well founded,3 it is difficult to distinguish operationally between irrational choices and poorly informed ones, and the new approach to the theory of choice does give appropriate recognition to the investment in and costly accumulation of information.
I do not think it would be useful in *This article was originally part of an honors thesis entitled “Theories of Rational Choice Under Uncertainty” submitted at Harvard College, April 1952.
Our aim will be to formulate the basic problems with a view to clarifying the causes underlying the application, the logic, and the rationality of two categories, namely, central priorities and individual preferences.
This hypothesis, if reasonably valid in a sufficiently wide domain, has far-reaching implications for economic theory.2 It provides a unified interpretation of two kinds of economic behavior that have traditionally been rationalized on divergent, and largely inconsistent, lines -first, choices among alternatives re- ’ We are indebted to William J. Baumol and Jacob Marschak for helpful comments on an earlier draft of this paper.
The importation of these theories of the processes of choice into economics could provide immense help in deepening our understanding of the dynamics of rationality, and of the influences upon choice of the institutional structure within which it takes place.
Within this framework we can accommodate both the rational elements in choice, so much emphasized by economics, and the nonrational elements to which psychologists and sociologists often prefer to call attention.
For, it is perfectly possible to specify the conditions for a social decision process based on some sort of collective rationality stemming from a social ordering of preferences.44 There are problems, certainly.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The behavior of the decision-maker, in making choices among alternative courses of action, is the crucial factor in the economic unit in determining what “has” happened in a positive sense as well as in determining what “should” happen in a normative sense.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Mabel F. Timlin
0.842
While the economist may be able to make certain presumptions about “utility” on the basis of observed facts about behavior, he must remain fundamentally ignorant concerning the actual ranking of alternatives until and unless that ranking is revealed by the overt action of the individual in choosing.
THE DELIBERATENESS OF ECONOMIC CHOICES’ ELDON D. SMITH University of Kentucky In the investigation of any new subject-matter area, doubts usually emerge regarding the adequacy of the theoretical framework employed.
These decisions are certainly not to be made on purely economic grounds; and there is even some doubt whether they can be made rationally at all.32 But certainly “marginal” choices have to be made here and, while economics is obviously relevant, equilibrium analysis does an inadequate job of formulating the desirable social norms.
Thus, economics suggests the proposition that actual choices depend not only on preferences but on opportunities, and that under some circumstances quite small changes in either preferences or opportu- nities may result in large changes in actual choices made.
Many of these decisions cannot be taken solely, or even mainly, on the basis of economic reasoning, as they are bound up with the larger strategy of economic planning, and hence with value judg?
It is the contention of the present writer that the notion of involuntary economic decisions, to become meaningful, must be derived from a comparison between alternative economic models, or frameworks, under which society may collectively choose to operate.
By exploring within a general equilibrium framework the economic implications of such choices and connecting them with specific policy measures, it is hoped that more conscious and more consistent choices may be made.
It is remarkable that economic theory should so long have imagined itself to be speaking of choice when it has addressed itself to a world that is largely “certain” and therefore “determined.”
Whether our interests lie in the normative or in the descriptive aspects of rational choice, the construction of models of this kind should prove instructive.
While it is impossible to do justice to all such work in this brief section, an attempt is made to convey some of the ways in which this work overlaps economics with reference to three key areas, namely, decision-making, the search for information, and the role of reference groups.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1950-1959
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The behavior of the decision-maker, in making choices among alternative courses of action, is the crucial factor in the economic unit in determining what “has” happened in a positive sense as well as in determining what “should” happen in a normative sense.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Mabel F. Timlin
0.842
While the economist may be able to make certain presumptions about “utility” on the basis of observed facts about behavior, he must remain fundamentally ignorant concerning the actual ranking of alternatives until and unless that ranking is revealed by the overt action of the individual in choosing.
These decisions are certainly not to be made on purely economic grounds; and there is even some doubt whether they can be made rationally at all.32 But certainly “marginal” choices have to be made here and, while economics is obviously relevant, equilibrium analysis does an inadequate job of formulating the desirable social norms.
Many of these decisions cannot be taken solely, or even mainly, on the basis of economic reasoning, as they are bound up with the larger strategy of economic planning, and hence with value judg?
It is the contention of the present writer that the notion of involuntary economic decisions, to become meaningful, must be derived from a comparison between alternative economic models, or frameworks, under which society may collectively choose to operate.
Whether our interests lie in the normative or in the descriptive aspects of rational choice, the construction of models of this kind should prove instructive.
“2 If the skeptical reader is inclined at this point to wonder why an economic generalization cannot describe collective choice and its results, Ellis explains that economics is concerned with”.
’The author, having so far kept his opinions submerged, is unable to avoid remarking that it would seem “better” to confine utility “theory” to attempts to explain or discern why a person chooses one thing rather than another-at equal pric Three Types of Choice Predictions Sure Prospects.
If rationality in individual behavior is considered a desirable feature of a choice process,23 there would appear to be several reasons for claiming that market choice should be preferred.
THE DELIBERATENESS OF ECONOMIC CHOICES’ ELDON D. SMITH University of Kentucky In the investigation of any new subject-matter area, doubts usually emerge regarding the adequacy of the theoretical framework employed.
Thus, economics suggests the proposition that actual choices depend not only on preferences but on opportunities, and that under some circumstances quite small changes in either preferences or opportu- nities may result in large changes in actual choices made.
By exploring within a general equilibrium framework the economic implications of such choices and connecting them with specific policy measures, it is hoped that more conscious and more consistent choices may be made.
The fact that decisions are so frequently taken in this sort of way is generally regarded in the neo-classical tradition of economic theory, in which knowledge is assumed to be costless, as a reflection of the irrationality, or gullibility-cum-rapacity, of man in a capitalist economic system: it is on the contrary a manifestation of rationality in a situation in which the decisions that have to be taken are increasingly numerous, multiplying as incomes rise, while time is short and increasingly valuable.
In spite of Ricardo’s urging that “it would be no answer to me to say that men were ignorant of the best and cheapest mode of conducting their business and paying their debts, because that is a question of fact, not of science, and might be urged against almost every proposition in Political Economy,” recent developments in economic theory and in psychological theory and experiment have attempted to deal specifically with decision making under conditions of uncertainty.
The choice of a social choice procedure is itself an intriguing and important question which has captured the attention of economists.7 Certain restrictions can be placed on the kinds of allowable social choice procedures.
It is remarkable that economic theory should so long have imagined itself to be speaking of choice when it has addressed itself to a world that is largely “certain” and therefore “determined.”
While it is impossible to do justice to all such work in this brief section, an attempt is made to convey some of the ways in which this work overlaps economics with reference to three key areas, namely, decision-making, the search for information, and the role of reference groups.
It proposes to open the theory to a more realistic view of decision processes, while retaining the equilibrium results of existing theory as a possible special case.
In this way, it becomes apparent that any method of choice among economic alternatives under uncertainty must be based on a pragmatic judgment which omits at least one criterion that seems desirable.
The cluster gathers 1267 sentences from our corpus. It represents 0.78% of all the sentences selected over the whole period.
The community exists from 1960 to 1969.
The most recurring authors are E. J. Mishan (16 sentences), Harry G. Johnson (14 sentences), Niles M. Hansen (12 sentences), A. S. Skinner (9 sentences), Kosta Mihailović (9 sentences), Syed Ahmad (9 sentences), Giuseppe Ugo Papi (8 sentences), V. K. R. V. Rao (8 sentences), Arthur Schweitzer (7 sentences), Barry E. Supple (7 sentences).
The most recurring journals are The American Economic Review (131 sentences), The Economic Journal (110 sentences), The Quarterly Journal of Economics (67 sentences), Eastern European Economics (66 sentences), Economic Development and Cultural Change (57 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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We can make our thinking strictly rational in spite of this, but only by facing the valuations, not by evading Gunnar Myrdal faced up to this problem some twenty years ago in his An American Dilemma.16 His subsequent work in the field of economic development has enabled him to elaborate his original position on these issues.
I do not mean to imply that Soviiet-style economies cannot also utilize rationality in decision making, or benefit from historical experience, nor that other economies cannot learn from their experiences- for example, the inevitability of coercion and regimentation which such systems involve-merely that the subject is sufficiently complicated as it is.
“48 In general, Weber’s inquiry into the nature of the non-economic element in the development of rational capitalism provides important insights concerning the development of economic rationality within the framework of other economic systems.
Zeitschrift für Nationalökonomie / Journal of Economics
Niles M. Hansen
0.717
Yet, while this is so, the development of economic arrangements and psychological and other attitudes can 1 This lecture was given to the Annual Meeting of the Royal Economic Society, July 9, 1964.
This is often accompanied by the argument, as in some theories of the “rise of capitalism,” that the appearance of such rationality will as a natural consequence lead to economic growth.
It is our contention that it would be sounder economics to teach that the rational region of production begins where APPxi is maximum and ends where MPPxi is zero.
COMMUNICATIONS THE NON SEQUITUR OF THE “DEPENDENCE EFFECT” For well over a hundred years the critics of the free enterprise system have resorted to the argument that if production were only organized rationally, there would be no economic problem.
Conversely, the generality of a non-economic value basis for economic rationality in systems which have appeared and evolved in the present century tends to confirm the essential credibility of Weber’s propositions concerning the development of capitalism.
His doctoral dissertation, ” Rational Choice and Patterns of Growth in a Monetary Economy,” a summary of which appeared in the Papers and Proceedings 1967 issue of the American Economic Review, pages 534-44, has become one of the pillars upon which further theoretical development in this field stands.
For that reason I restrict my remarks to cases in wthich rational choice with respect to the nature and extent of state participation in the economy is still possible.
To see how closely his conception of human nature resembles Frank Knight’s “rationalistic” view of man it is necessary to refer to Lange’s last work, Political Economy.22 In a chapter on “The Principle of Economic Rationality,” Lange discusses the difference between a traditional, precapitalist, “natural economy” and a developed market economy where commodities are exchanged for money.
Imperfections in knowledge regarding managerial resources available, future prices, production responses, technology, institutions and human behavior receive proper consideration.
nical changes easily within the reach of such peasants which would increase their output if only their psychological and cultural blockages could be removed.3 It is difficult in any case to distinguish the effects of irrationality from the absence of the customarily assumed profit maximizing motivations.
The denial of economic inevitability as a legitimate basis for change is seen in this comment by another protective-minded committee member: “I am reluctant to disturb the status quo unless there are clear and compelling needs to do so and it can be shown that the change desirable.”
The objection that by sticking to a short term growth criterion the economy does not become flexible, overlooks two factors : one is that imports are available to achieve flexibility ; and the second is that the long term decisions which may be irrational in the present year may become rational a few years hence, that is that they are not rejected forever, but only for the present.
Among the 50 closest sentences to the cluster’s centroid, 6% mention the terms ‘rational’ or ‘rationality’
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Centroid Similarity
We can make our thinking strictly rational in spite of this, but only by facing the valuations, not by evading Gunnar Myrdal faced up to this problem some twenty years ago in his An American Dilemma.16 His subsequent work in the field of economic development has enabled him to elaborate his original position on these issues.
We shall shortly examine some aspects of this case in some details and also note that its validity extends beyond the rationale provided by irreversible external economies, contrary to what is sometimes thought.
Top sentences (in general) of the cluster’s centroid
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Yet, while this is so, the development of economic arrangements and psychological and other attitudes can 1 This lecture was given to the Annual Meeting of the Royal Economic Society, July 9, 1964.
But if in a developing society which is growing ever richer and where a growing division of labour makes the interrelations between producers manysided and so intricate that they become difficult to survey we take stand in principle for a natural economy and deny commodity relations, the existence and justification of commodity production, the role and function of prices and money - then we have renounced the possibility of economic calculation and of careful comparisons, and together with it abandoned the claim to achieve the greatest possible results with a minimum of input and to assert the requirements of thrift and efficiency in the national economy as a whole and in all of its fields.
To consider one or the other method of economic development and not determine with some precision the time limit for achieving a satisfactory level of development, means to provide in advance for the emergence of a host of highly contrasting viewpoints, each defensible by very convincing arguments.
A question which is raised immediately in this context, and one which bears directly on the theoretical superstructure of economics, involves the idea of whether there is a conflict between market determined comparative advantage and the acceleration of economic development ?
Since the degree of economic development which has occurred and which may occur in a given area is a function of the accumulated technology, including that embodied in capital goods as well as that embodied in books, and of the permissiveness of the institutions, the policies and methods appropriate to one area may not be applicable to another.
Once it is recognized and fully appreciated that economic development is a highly complex process involving variables which have non-economic as well as economic dimensions, the quest for a general theory of economic development and general policy principles, though undoubtedly fascinating, subsides in practical importance.
In view of all this, and particularly of the fact that the entire mechanism is under the general control of society which, by exercising adequate influence on economic movements, can obviate many shortcomings of a completely spontaneous and uncontrolled functioning of this mechanism - under such conditions, even despite the commodity form of production, better results may be achieved than under the conditions of private production.
Although economic matters occupy, as indeed they should, a great deal of the author’s attention, and take up five entire chapters as well as fairly substantial sections of the remaining nine, the scope of the book is far wider than this.
Effective economic progress is impeded by distortions in our value relations and, in particular, by our prices, on the one hand, and by distortions in the structure of the economy, on the other.
We can make our thinking strictly rational in spite of this, but only by facing the valuations, not by evading Gunnar Myrdal faced up to this problem some twenty years ago in his An American Dilemma.16 His subsequent work in the field of economic development has enabled him to elaborate his original position on these issues.
Far too simple do the theories appear to be which locate the prime cause of the economic development of a country, or of the entire international community, in the abundant availability of productive factors: in particular, in the accumulation of savings, to be transformed into productive factors.
If a consciously formed process of social production is not based on a skillful use of objective economic laws, it does not produce the desired effect; it gives rise to spontaneous phenomena and necessarily leads to large or small discontinuities and to an expansion of old disproportions or the creation of new ones in the national economy.
The choice here, as in much of economic analysis, is to judge in terms of the prevailing set of values of modern economic society; and in these terms the historical emergence of these very values in the process of economic growth is an explanatoryvariable.
The cluster gathers 1820 sentences from our corpus. It represents 1.12% of all the sentences selected over the whole period.
The community exists from 1960 to 1979.
The most recurring authors are Harry G. Johnson (16 sentences), Don Patinkin (9 sentences), R. H. Coase (9 sentences), Richard R. Nelson (9 sentences), Warren J. Samuels (9 sentences), George J. Stigler (8 sentences), Harold Demsetz (8 sentences), William J. Baumol (8 sentences), E. J. Mishan (7 sentences), Franco Modigliani (7 sentences).
The most recurring journals are The American Economic Review (215 sentences), Journal of Political Economy (112 sentences), The Economic Journal (102 sentences), The Journal of Finance (78 sentences), The Quarterly Journal of Economics (78 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1960-1969
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Top terms 1970-1979
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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One must also, if one is rational, take into account the effect that one’s own policy * Manuscript received March 26, 1974; revised August 20, 1974. l This paper is based on a chapter of my Ph.
We find it hard to believe that there is even any point in trying to fill such an economic box.3 What is to be said about the introduction of a construct which is unnecessary in explaining the phenomenon with which it deals; which has bizarre and implausible implications; which creates havoc in the analysis of widely accepted policy remedies; and, finally, which is associated with no support other than that which comes from the fact that it has been algebraically specified?
I am merely an economist and am further handicapped as a reviewer of this book by an incurable scepticism about the meaningfulness of either dogmatic or “rationalistic” exposition of moral principles.
Neither do I regard it as appropriate here to discuss the economic meaning of the assumptions more than perfunctorily: but the reader will be as well aware as I, that it is more important to understand assumptions than to follow the proof of their implications.
I shall develop my answer in three stages: first, a brief general statement; second, a discussion of some of the new concepts and approaches that economic theorists have found useful in their own work, and which have a more general application; and third, examination of some examples drawn from recent experience and public debate in this country.
The assumptions are restrictive but are not, it may be contended, out of keeping with the traditions of economic theory or unreasonable considering the orientation of the discussion.5 Similar results can be obtained under much less restrictive assumptions, but not without encumbering the exposition.
We would like to stress, therefore, that we are presenting a well-defined game in the descriptive sense, formulated independently of any assumptions of equilibrium or of what might or might not be “rational” behavior.
In brief, most of us have been preoccupied either with problems of immediate public concern, or with the elucidation of received principles which do not illuminate economic phenomena of major significance.
I am merely an economist and am further handicapped as a reviewer of this book by an incurable scepticism about the meaningfulness of either dogmatic or “rationalistic” exposition of moral principles.
Neither do I regard it as appropriate here to discuss the economic meaning of the assumptions more than perfunctorily: but the reader will be as well aware as I, that it is more important to understand assumptions than to follow the proof of their implications.
I shall develop my answer in three stages: first, a brief general statement; second, a discussion of some of the new concepts and approaches that economic theorists have found useful in their own work, and which have a more general application; and third, examination of some examples drawn from recent experience and public debate in this country.
The assumptions are restrictive but are not, it may be contended, out of keeping with the traditions of economic theory or unreasonable considering the orientation of the discussion.5 Similar results can be obtained under much less restrictive assumptions, but not without encumbering the exposition.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
S. G. Triantis
0.697
In brief, most of us have been preoccupied either with problems of immediate public concern, or with the elucidation of received principles which do not illuminate economic phenomena of major significance.
One must also, if one is rational, take into account the effect that one’s own policy * Manuscript received March 26, 1974; revised August 20, 1974. l This paper is based on a chapter of my Ph.
We find it hard to believe that there is even any point in trying to fill such an economic box.3 What is to be said about the introduction of a construct which is unnecessary in explaining the phenomenon with which it deals; which has bizarre and implausible implications; which creates havoc in the analysis of widely accepted policy remedies; and, finally, which is associated with no support other than that which comes from the fact that it has been algebraically specified?
We would like to stress, therefore, that we are presenting a well-defined game in the descriptive sense, formulated independently of any assumptions of equilibrium or of what might or might not be “rational” behavior.
Another economist will make light of such frictional resistances and will push his analysis rapidly through to the new equilibrium condition in which everything is all right again.20 However much it may be difficult to demonstrate the motivations of Prof. Friedman in order to show that his method, which leads him to insert new goals and change old ones, when combined with his clear statements of political belief, results in goal structures quite “conservative” in content, we can always consult another observation of Lutz, who noted both the difficulty of establishing proofs for normative motive, and the associated natural ease with which suspicions on the question come to our mind.
Among the 100 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
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In the meantime, a major purpose of this paper has been to generate more interest and research output by scholars, and perhaps, more understanding among economists of the highly complex and often elusive issues involved.
The Canadian Journal of Economics / Revue canadienne d’Economique
J.D. Howe , D.G. McFetridge
0.851
We find it hard to believe that there is even any point in trying to fill such an economic box.3 What is to be said about the introduction of a construct which is unnecessary in explaining the phenomenon with which it deals; which has bizarre and implausible implications; which creates havoc in the analysis of widely accepted policy remedies; and, finally, which is associated with no support other than that which comes from the fact that it has been algebraically specified?
This discussant is especially delighted with the author’s revealed preference regarding the proper relationship between economic theory and observation: the economic model is presented explicitly and is presented first.
Many writers of books in this area attempt to relate their subjects to economic analysis, but they seldom adequately appraise the relevance of the current stage of development of economic theory.
In all cases authors should we would further suggeststateboth their assumptions and their conclusions in ordinary economic language, and should also aim, whenever possible, at presenting the main stages of their argu ments in such terms.
I shall develop my answer in three stages: first, a brief general statement; second, a discussion of some of the new concepts and approaches that economic theorists have found useful in their own work, and which have a more general application; and third, examination of some examples drawn from recent experience and public debate in this country.
23 Still other parts of the theoretical framework are developed more fully in the course of the empirical analysis of some of the issues raised in the other chapters of the book from which this article is abstract 8.
The chief merit of the book lies in the wealth of empirical data that is surveyed; and in the very lucid and explicit manner in which the author’s arguments are set out.
Although a number of economists, D. Patinkin, F. J. de Jong and H. Vandenborre among others, have recently devoted a good deal of attention to this important, but previously much neglected concept, their results have not been altogether satisfactory.2 Rather than take the space necessary to justify this conclusion we shall immediately turn to the subject of our investigation.
It is for this reason that the author would like to expose what seem to be some of the dangers of some of the present arguments, and to suggest ways for economists to move in order to reach greater agreement on these methodological issues.
The last section of the paper contains a summary of our theoretical and empirical results as well as a brief statement of the policy implications of these analytical conclusions.
To use one general framework for all of them leads to a loss of structure which has been a source of much trouble in this field.56 London School of Economics Manuscript received October, 1975; revision received December, 1975.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1960-1969
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This discussant is especially delighted with the author’s revealed preference regarding the proper relationship between economic theory and observation: the economic model is presented explicitly and is presented first.
In all cases authors should we would further suggeststateboth their assumptions and their conclusions in ordinary economic language, and should also aim, whenever possible, at presenting the main stages of their argu ments in such terms.
I shall develop my answer in three stages: first, a brief general statement; second, a discussion of some of the new concepts and approaches that economic theorists have found useful in their own work, and which have a more general application; and third, examination of some examples drawn from recent experience and public debate in this country.
Although a number of economists, D. Patinkin, F. J. de Jong and H. Vandenborre among others, have recently devoted a good deal of attention to this important, but previously much neglected concept, their results have not been altogether satisfactory.2 Rather than take the space necessary to justify this conclusion we shall immediately turn to the subject of our investigation.
It is for this reason that the author would like to expose what seem to be some of the dangers of some of the present arguments, and to suggest ways for economists to move in order to reach greater agreement on these methodological issues.
The assumptions are restrictive but are not, it may be contended, out of keeping with the traditions of economic theory or unreasonable considering the orientation of the discussion.5 Similar results can be obtained under much less restrictive assumptions, but not without encumbering the exposition.
We would also like to add that the author shows skill in a wide range of economic problems, which enables him to undertake a methodologically correct analysis and to make substantial generalizations and conclusions based on his quantitative measurements.
The research of several economists- among them Ronald Coase, James Buchanan, and C. E. Lindblom- bears on the development of such a theory.9 Because of the importance of the subject, a great deal more work on it is warranted.
In the meantime, a major purpose of this paper has been to generate more interest and research output by scholars, and perhaps, more understanding among economists of the highly complex and often elusive issues involved.
The Canadian Journal of Economics / Revue canadienne d’Economique
J.D. Howe , D.G. McFetridge
0.851
We find it hard to believe that there is even any point in trying to fill such an economic box.3 What is to be said about the introduction of a construct which is unnecessary in explaining the phenomenon with which it deals; which has bizarre and implausible implications; which creates havoc in the analysis of widely accepted policy remedies; and, finally, which is associated with no support other than that which comes from the fact that it has been algebraically specified?
Many writers of books in this area attempt to relate their subjects to economic analysis, but they seldom adequately appraise the relevance of the current stage of development of economic theory.
23 Still other parts of the theoretical framework are developed more fully in the course of the empirical analysis of some of the issues raised in the other chapters of the book from which this article is abstract 8.
The chief merit of the book lies in the wealth of empirical data that is surveyed; and in the very lucid and explicit manner in which the author’s arguments are set out.
The last section of the paper contains a summary of our theoretical and empirical results as well as a brief statement of the policy implications of these analytical conclusions.
To use one general framework for all of them leads to a loss of structure which has been a source of much trouble in this field.56 London School of Economics Manuscript received October, 1975; revision received December, 1975.
The cluster gathers 635 sentences from our corpus. It represents 0.39% of all the sentences selected over the whole period.
The community exists from 1960 to 1969.
The most recurring authors are Fernand Martin (11 sentences), George N. Halm (11 sentences), S. K. Nath (11 sentences), I. Friss (9 sentences), S. Chakravarty (9 sentences), WOLFGANG F. STOLPER (9 sentences), Israel M. Kirzner (7 sentences), Morris Bornstein (6 sentences), Otto A. Davis (6 sentences), Paul Craig Roberts (6 sentences).
The most recurring journals are The American Economic Review (67 sentences), The Economic Journal (55 sentences), Eastern European Economics (49 sentences), Land Economics (36 sentences), Acta Oeconomica (33 sentences).
Top TF-IDF terms describing the community
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Although the emergence of an economically rational system of resource allocation is partly dependent on the various factors mentioned above, it is also dependent on the ability and disposition of men to adopt certain types of practical rational conduct.
Zeitschrift für Nationalökonomie / Journal of Economics
Niles M. Hansen
0.805
If we define economic rationality as the balancing of individual cost against individual benefit, then, as has been argued, underdevelopment can be considered as the normal outcome of the rational allocation of private resources.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Barry E. Supple
0.730
Calculations which are rational to the economic planners are not necessarily rational to the people whose participation is crucial to the achievement of the plan.
In relation to social questions, it has two important implications: that things are the way they are for some powerful reason or reasons, which have to be understood if effective social solutions are to be devised; and that any solutions so devised and applied will have repercussions elsewhere, which will have to be faced and which ought to be taken into accoun On the normative side, the more generally applicable concepts of economic theory are associated with the distinction between means and ends, and the problem of choice implicit in the concept of allocation of scarce resources.
The problem of the rational allocation of resources in a centrally directed economy can be viewed as the choice by the political leaders of their preferred point on the economy’s production possibilities frontier.
Under either rational planning or effective competition, the lower is the demand, the more will output be concentrated in the low-cost fields; contrariwise, the greater the demand, the more it calls out the higher-cost sources of supply, via the fact or expectation of a rising price.
In addition to the foregoing reasoning, it may be pointed out that in the orthodox economic “wisdom” which seems to be prevalent in most less-developed countries, the rationale for governmental economic planning generally rests on two levels of reasoning: theoretical and practical.
However, it is argued that even if one accepts the usefulness of the assumption of economic rationality, the implied premiss that the optimization procedure is effortless leads to seriously misleading predictions.
Obviously, the elimination of excessive administrative constraints and the introduction of guidance through economic devices do not mean an automatism that will settle everything; they rather signify that greater scope for action will be ensured for initiative by the enterprises, for calculation and the optimal combination of various factors of production.
Nor is it likely that a new and better resource balance will flow from redoubtably “pure” economists essaying almost offhand political and psychological explanations of broadbased economic problems.8 7A brief reference to one major case-the California Water Plan, which they characterize as a “maniac” example of irrational decision making-will suggest what would be involved.
Indeed, economics is a study of the problems of allocating resources under conditions of scarcity; the degree to which man can afford to act irrationally in these respects diminishes precisely as we move back in the past where the choices that he faced were more circumscribed and more stringently affected his survival.
His ” Guidance” paper appears to have been intended, in part, to illuminate one basic problem of any society; and perhaps, in part, to warn that impossibility-of-rational-allocation-ofresources is not a sound indictment of any and every sort of socialism.
The Paretian set of value judgments has been assumed to be of wide acceptance, and from it the definition of an optimum allocation of resources has been derived-an allocation which it is impossible to change in order to improve the economic position of one individual without hurting the economic position of any other.
From the fundamental necessity imposed upon human beings to plan, to allocate, to choose, to compute, there derives a body of propositions that explain the phenomena of the market.
Because there is no single policymaker who is both rational and consistent, but rather a transient group of policymakers who, as a group, are neither rational nor consistent, Maass is required to demon- BENEFIT-COST ANALYSIS 699 strate that effective planning is capable of coping with such changing signals if his proposal is to be taken seriously.
Among the 50 closest sentences to the cluster’s centroid, 8% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The problem of the rational allocation of resources in a centrally directed economy can be viewed as the choice by the political leaders of their preferred point on the economy’s production possibilities frontier.
Although the emergence of an economically rational system of resource allocation is partly dependent on the various factors mentioned above, it is also dependent on the ability and disposition of men to adopt certain types of practical rational conduct.
Zeitschrift für Nationalökonomie / Journal of Economics
Niles M. Hansen
0.748
Under either rational planning or effective competition, the lower is the demand, the more will output be concentrated in the low-cost fields; contrariwise, the greater the demand, the more it calls out the higher-cost sources of supply, via the fact or expectation of a rising price.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
’2 V. Implications It is interesting to contrast the allocation in the planned economy with that arising from the simple policy of dividing up output equally at the completion of production.
The problem of the rational allocation of resources in a centrally directed economy can be viewed as the choice by the political leaders of their preferred point on the economy’s production possibilities frontier.
Unless economists are prepared to give advice in such cases, initiative will pass into the hands of the ” planners,” the engineers and the administrators, with results that may well be as irreversible as they are, sometimes, deplorable.5 It is painfully clear that administrators and planners frequently avail themselves of the opportunity of interfering with resource allocation.
INTRODUCTION The problem of allocating productive resources to attain some predetermined objective has long occupied a central position in both theoretical and applied economics.
From the point of view of an economy as a whole, it is odd to call this joint choice of investment and employment a choice of technique; unless the clinical isolation of the general planning problem illuminates the choice facing a single enterprise.
In relation to social questions, it has two important implications: that things are the way they are for some powerful reason or reasons, which have to be understood if effective social solutions are to be devised; and that any solutions so devised and applied will have repercussions elsewhere, which will have to be faced and which ought to be taken into accoun On the normative side, the more generally applicable concepts of economic theory are associated with the distinction between means and ends, and the problem of choice implicit in the concept of allocation of scarce resources.
The case for planning, as discussed earlier, rests primarily upon two arguments; first, the divergence between private profitability and social desirability may withhold investment from certain essential spheres of economic activity; and secondly, reliance upon operation of the price and profit signals may be too sluggish in evoking investment in the desired channels, resulting in avoidable bottlenecks and consequent waste.
The Allocation of Economic Resources Despite the existence of affluent societies, the logical beginning of economic analyses would appear to be the old problem of the allocation of scarce resources to wants which seem always to be larger than can be fully satisfied.
It would seem that if economic activity is to be consciously organized by a centrally formulated plan, whether in keeping with the general will of a welfare function or a specific will of a state preference function, theory and practice must merge.
The Canadian Journal of Economics and Political Science / Revue canadienne d’Economique et de Science politique
Fernand Martin
0.764
Monopoly, Keynesian theory, welfare economics, distinctions between wants and needs, less than perfect mobility, imperfections in knowledge, differences between shortand long-run planning, consumer irrationalityall qualify the tradition of an optimum resource allocation both theoretically and empirically.
The cluster gathers 9211 sentences from our corpus. It represents 5.69% of all the sentences selected over the whole period.
The community exists from 1970 to 2019.
The most recurring authors are Thomas J. Sargent (103 sentences), Robert E. Hall (75 sentences), Stephen J. Turnovsky (75 sentences), N. Gregory Mankiw (74 sentences), Stanley Fischer (72 sentences), William Fellner (68 sentences), Edmund S. Phelps (65 sentences), Christopher A. Sims (64 sentences), Michael Woodford (61 sentences), John J. Struthers (56 sentences).
The most recurring journals are The American Economic Review (782 sentences), Journal of Money, Credit and Banking (703 sentences), Journal of Post Keynesian Economics (458 sentences), The Economic Journal (453 sentences), Journal of Political Economy (362 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
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Top TF-IDF terms describing the community for each time window
Top terms 1970-1979
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Top terms 1980-1989
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Top terms 1990-1999
Token
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Top terms 2000-2009
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expectations
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Top terms 2010-2019
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
This article will criticize rational expectations models for several different reasons.
In a general way this describes the overlap between the views usually associated with the label “rational expectations” and views expressed in the present paper and in my earlier writings.
Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity By JOHN HALTIWANGER AND MICHAEL WALDMAN* A recurring controversy in economic thought concerns the conflict between the assumption of rationality and the fact that economic agents have limited capacities to process information.’
The Valid Core of Rationality Hypotheses In the Theory of Expectations INTRODUCTION SECTION 1 DESCRIBES THE BACKGROUND of the debate from which the recent literature on rational expectations has emerged, and section 2 summarizes the salient features of the most ambitious version the “hard-line” version-of the rational-expectations hypothesis.
By jointly assuming the mantle of rationality and equilibration, and by doing it in a way that enhanced their defensibility, the rational -expectations hypothesis burrowed to the core of economic thought, and firmly established both its own credentials and those of its language.
INTRODUCTION The burgeoning literature employing or alluding to the concept of rational expectations’ in time-dependent economic processes is strangely vague regarding possible mechanisms by which the economic agents could actually achieve the hypothesized “rationality.”
Rational expecta tions may be appropriately applied to some financial and foreign exchange markets, but there are good grounds for doubting its applicability in other major areas, particularly to macroeconomic behaviour.
In this paper we regard the rational expectations hypothesis as a potentially valuable tool in applied economics, realizing the absolute necessity to distinguish between the rational expectations hypothesis itself and the underlying structure of the model to which that hypothesis is applied.
Several authors usually associated with “rational expectations theory” have recognized the validity of some of these, but no reasonably comprehensive discussion has so far been presented of the qualifications that I regard as essential even in a first approximation to reality.
While many critics of rational expectations have noted the information requirements of the hypothesis, the problem this creates can be avoided by carefully stating the hypothesis in probabilistic terms, as was done in its original formulation by John Muth.30 A much more serious problem results if one considers that many decisions made by economic agents are in fact not conscious decisions but habitual in character.
It is clear from this latest work that he sees rational expectations as a potentially useful modeling technique, but stops short of embracing the new classical research program.
The Canadian Journal of Economics / Revue canadienne d’Economique
Douglas D. Purvis
0.843
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1970-1979
Sentence
Title
Year
Journal
Authors
Centroid Similarity
INTRODUCTION The burgeoning literature employing or alluding to the concept of rational expectations’ in time-dependent economic processes is strangely vague regarding possible mechanisms by which the economic agents could actually achieve the hypothesized “rationality.”
Perhaps the justification for this paper is that both critics and some practitioners of the rational expectations approach seem unaware of these implications.
A rational agent draws on an information set larger than historical prices, and expectations are rational if they depend upon the same things that economic theory suggests determines the variable.
The Canadian Journal of Economics / Revue canadienne d’Economique
T. K. Rymes
0.823
The rational expectations concept encompasses the prospect of the efficient use of information, as in the efficient market hypothesis.14 The “pure” rational expectations approach, as fostered by Muth, is generalized even further in some versions of rational expectations, such that significant deviations from rationality in the “pure” sense are permitted.
Expectations about a variable are said to be rational if they depend, in the proper way, on the same things that economic theory says actually determine that variable.
In a general way this describes the overlap between the views usually associated with the label “rational expectations” and views expressed in the present paper and in my earlier writings.
Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity By JOHN HALTIWANGER AND MICHAEL WALDMAN* A recurring controversy in economic thought concerns the conflict between the assumption of rationality and the fact that economic agents have limited capacities to process information.’
The Valid Core of Rationality Hypotheses In the Theory of Expectations INTRODUCTION SECTION 1 DESCRIBES THE BACKGROUND of the debate from which the recent literature on rational expectations has emerged, and section 2 summarizes the salient features of the most ambitious version the “hard-line” version-of the rational-expectations hypothesis.
By jointly assuming the mantle of rationality and equilibration, and by doing it in a way that enhanced their defensibility, the rational -expectations hypothesis burrowed to the core of economic thought, and firmly established both its own credentials and those of its language.
Rational expecta tions may be appropriately applied to some financial and foreign exchange markets, but there are good grounds for doubting its applicability in other major areas, particularly to macroeconomic behaviour.
The fact that rational expectations has been seen as so important in much economic literature may then in part be due to the specific contexts in which it has been examined.
Sargent suggests that the traditional rational expectations models should be modified to take account of the fact that economic agents are boundedly rational, in the sense that they do not know the true structure of the world anymore than the economists who are modelling their behaviour.
Rational deviations from the textbook “rational expectations hypothesis” are usually motivated by learning in the presence of uncertainty with respect to economic structure, or, in the broadest of terms, changes in regime.
An assessment of the validity of the rational-expectations hypothesis relying on such principles-although in the context of the models of the paper, the analysis makes intuitive sense so that it could be reasonably well understood and defended without direct reference to abstract principles-leads to the recognition of two types of cases.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Roger Guesnerie
0.833
In this paper the validity of the rational expectations hypothesis is assessed from the Common Knowledge of Rationality viewpoint, one that will first be illustrated by a partial equilibrium example ’a la Muth.
This discussion is reminiscent of the debate about the rational expectations hypothesis in economics, for this hypothesis, like rational choice theory in sociology, also appeared in stronger and in weaker versions.
This suggests that over time economic processes follow averages that can be discovered by rational agents, thus implying the possibility of rational expectations.
Rational expectations is criticized for placing unreasonable computational and informational demands on economic agents; also, a vast empirical literature rejects rational expectations.1 However, once we depart from fully rational expectations, there are many ways to do so.
In this section we also argue that some of the usual arguments for dismissing the application of rational expectations as a modelling approach in a real world economic model are misguided.
Furthermore we discuss two interpretations of the model, one assuming that agents hold rational expectations the other assuming that they hold rational beliefs.
This approach places the emphasis on the way rational individuals’ expectations in conditions of uncertainty over the determinants of the objective data generate endogenous forces that produce changes in the objective data that preclude any conception of equilibrium.
INTRODUCTION Under the rational expectations hypothesis, there exists an objective probability law governing the state process, and economic agents know this law which coincides with their subjective beliefs.
The Valid Core of Rationality Hypotheses In the Theory of Expectations INTRODUCTION SECTION 1 DESCRIBES THE BACKGROUND of the debate from which the recent literature on rational expectations has emerged, and section 2 summarizes the salient features of the most ambitious version the “hard-line” version-of the rational-expectations hypothesis.
The Canadian Journal of Economics / Revue canadienne d’Economique
David Burton
0.908
This issue is of noteworthy interest in its own as it is commonly assumed in the theoretical modelling literature that the rational expectations hypothesis holds.
In this paper we regard the rational expectations hypothesis as a potentially valuable tool in applied economics, realizing the absolute necessity to distinguish between the rational expectations hypothesis itself and the underlying structure of the model to which that hypothesis is applied.
The rationality of expectations: towards the weak form of rational expectations Attempts at modelling the role of expectations in economic behavior usually consider expectations as a result of a deterministic process, represented by functional relationships between expectations on the one hand and the information which is assumed to underly these expectations on the other.
The Valid Core of Rationality Hypotheses In the Theory of Expectations INTRODUCTION SECTION 1 DESCRIBES THE BACKGROUND of the debate from which the recent literature on rational expectations has emerged, and section 2 summarizes the salient features of the most ambitious version the “hard-line” version-of the rational-expectations hypothesis.
The Canadian Journal of Economics / Revue canadienne d’Economique
David Burton
0.908
This issue is of noteworthy interest in its own as it is commonly assumed in the theoretical modelling literature that the rational expectations hypothesis holds.
In this paper we regard the rational expectations hypothesis as a potentially valuable tool in applied economics, realizing the absolute necessity to distinguish between the rational expectations hypothesis itself and the underlying structure of the model to which that hypothesis is applied.
The rationality of expectations: towards the weak form of rational expectations Attempts at modelling the role of expectations in economic behavior usually consider expectations as a result of a deterministic process, represented by functional relationships between expectations on the one hand and the information which is assumed to underly these expectations on the other.
Several authors usually associated with “rational expectations theory” have recognized the validity of some of these, but no reasonably comprehensive discussion has so far been presented of the qualifications that I regard as essential even in a first approximation to reality.
In a general way this describes the overlap between the views usually associated with the label “rational expectations” and views expressed in the present paper and in my earlier writings.
Perhaps the justification for this paper is that both critics and some practitioners of the rational expectations approach seem unaware of these implications.
Martin Neil Baily , William D. Nordhaus, Christopher A. Sims
0.885
The hypothesis of rational expectations used in this paper follows John Muth’s proposal that expectations are informed predictions of future events based on the available information and the relevant economic theory.
Benjamin M. Friedman, James Duesenberry , William Poole
0.881
Our objective in this paper is to build on Muth’s basic concept by providing some insight into the processes by which the rational-expectations hypothesis can, in fact, be realized.
FOOTNOTES descriptions of the theory of rational expectations can be found in the following articles: “How Expectations Defeat Economic Policy,” Business Week, November 8, 1976, pp.
The Valid Core of Rationality Hypotheses In the Theory of Expectations INTRODUCTION SECTION 1 DESCRIBES THE BACKGROUND of the debate from which the recent literature on rational expectations has emerged, and section 2 summarizes the salient features of the most ambitious version the “hard-line” version-of the rational-expectations hypothesis.
The Canadian Journal of Economics / Revue canadienne d’Economique
David Burton
0.908
In this paper we regard the rational expectations hypothesis as a potentially valuable tool in applied economics, realizing the absolute necessity to distinguish between the rational expectations hypothesis itself and the underlying structure of the model to which that hypothesis is applied.
The rationality of expectations: towards the weak form of rational expectations Attempts at modelling the role of expectations in economic behavior usually consider expectations as a result of a deterministic process, represented by functional relationships between expectations on the one hand and the information which is assumed to underly these expectations on the other.
Several authors usually associated with “rational expectations theory” have recognized the validity of some of these, but no reasonably comprehensive discussion has so far been presented of the qualifications that I regard as essential even in a first approximation to reality.
In a general way this describes the overlap between the views usually associated with the label “rational expectations” and views expressed in the present paper and in my earlier writings.
Given the widespread use of the rational expectations hypothesis, an important empirical issue has become the extent to which expectations of economic variables are consistent with rational expectations.
The fact that rational expectations has been seen as so important in much economic literature may then in part be due to the specific contexts in which it has been examined.
International Journal of Transport Economics / Rivista internazionale di economia dei trasporti
G. WRIGHT
0.887
An assessment of the validity of the rational-expectations hypothesis relying on such principles-although in the context of the models of the paper, the analysis makes intuitive sense so that it could be reasonably well understood and defended without direct reference to abstract principles-leads to the recognition of two types of cases.
In this section we also argue that some of the usual arguments for dismissing the application of rational expectations as a modelling approach in a real world economic model are misguided.
In this paper the validity of the rational expectations hypothesis is assessed from the Common Knowledge of Rationality viewpoint, one that will first be illustrated by a partial equilibrium example ’a la Muth.
This issue is of noteworthy interest in its own as it is commonly assumed in the theoretical modelling literature that the rational expectations hypothesis holds.
Introduction THE important concept contribution of rational to expectations the modeling has of been expectations the most important contribution to the modeling of expectations in the past fifty years.
However, for several decades now, as expectations have become central not only to policy but also to research in economics, the rationality of expectations, as conventionally defined, is often called into question.
The Credibility of Rational Expectations Assumptions Whether considering income or other expectations, it has been standard practice for economists to assume that decision makers have specified expectations and to suppose that these expectations are “rational” in the sense of being objectively correct conditional on specified information.
In the economic theory of rational expectations, this attainment of the same expectations on the basis of the same information is of course assisted by using relevant economic theory to work out the likely prospects.14 But what if there are differences of view about relevant economic theory?
INTRODUCTION Under the rational expectations hypothesis, there exists an objective probability law governing the state process, and economic agents know this law which coincides with their subjective beliefs.
The cluster gathers 7584 sentences from our corpus. It represents 4.68% of all the sentences selected over the whole period.
The community exists from 1970 to 2019.
The most recurring authors are George A. Akerlof (39 sentences), Matthew Rabin (38 sentences), Ray C. Fair (31 sentences), Andrew Postlewaite (29 sentences), Larry Samuelson (29 sentences), Christopher A. Sims (27 sentences), Thomas J. Sargent (27 sentences), Botond Kőszegi (24 sentences), Joseph E. Stiglitz (24 sentences), David Schmeidler (23 sentences).
The most recurring journals are The American Economic Review (682 sentences), The Economic Journal (324 sentences), The Review of Economic Studies (316 sentences), Econometrica (297 sentences), Journal of Political Economy (283 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1970-1979
Token
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Top terms 1980-1989
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Top terms 2000-2009
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Top terms 2010-2019
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
In recent years there has been increasing interest in models in which economic actors are assumed to form expectations of variables rationally.
In the RE models economic agents are assumed to be rational in the sense that they know the model and use all the available information in the system in forming their expectations, but they are at the same time irrational in the sense that their decisions are not derived from the assumption of maximizing behavior.
Critics of the behavioral model presented here may argue that the comparison between the rational and the behavioral model is unfair for the rational model.
INTRODUCTION IT IS NO LONGER NOVEL to suggest that standard economic models make overly strong rationality assumptions.2 Unfortunately, taking account of this criticism is no easy task.
The expectations reflected by our model Leuthold and Hartmann Reply 587 are considered rational since they depend on the same things as suggested by economic theory and incorporate available information.
The standard model is periodically questioned by empirical observa tion, inducing researchers to seek bounded rationality models that explain the empirical puzzle.
MARCO BATTAGLINI , REBECCA B. MORTON, THOMAS R. PALFREY
0.790
The reader by now will have understood that optimizing, rationalexpectations models do not entirely eliminate the need for side assumptions not grounded in economic theory.
The rational solution of our model, which is based on the assumption of individual rationality and rational expectations, is compared with actual behavior in a laboratory experiment.
Thorsten Hens , Klaus Reiner Schenk-Hoppé, Bodo Vogt
0.786
Because this model does not assume any higher-level reflection about the rationality or best response of the opponent, it provides a contrasting benchmark to a model of full, commonly known rationality.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Bruno S. Frey , Reiner Eichenberger
0.779
FURTHER OBSERVATIONS ON THE RATIONALITY ASSUMPTION In addition to the limitations mentioned above, however, there are two theoretical limitations of the L-G model that may partially explain the empirical results of the previous section.
In these models, a much looser sense of rationality is appropriate, and the bounded rationality that is assumed needs to be justified by a combination of introspection, empirical evidence, and behavioral economics work.
It could be argued that our model even satisfies this stronger definition of rationality if it is a reduced form of a more complex model, in which individuals are acting to protect themselves against possible mis-specifications of the model.
Though the rational choice model in its simplest form leads to the prediction that “do” will be the dominant strategy, the evidence is strong that societies often manage to avoid such “destructive rationality.
Despite the fact that such models represent an innovative approach to the relaxation of unbounded rationality assumptions, they suffer from two major shortcomings.
For presentational simplicity, we refer to this benchmark as the rational-actor model, but we emphasize that this standard model assumes both rationality and zero cognition costs.
This branch of economics research has raised important questions about the rationality of individual behavior and has inspired a variety of theoretical alternatives to standard models.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Shachar Kariv, Dan Silverman
0.775
1 1 Critics of the heuristic model presented here may argue that the comparison between the rational and the heuristic model is unfair for the rational model.
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In the RE models economic agents are assumed to be rational in the sense that they know the model and use all the available information in the system in forming their expectations, but they are at the same time irrational in the sense that their decisions are not derived from the assumption of maximizing behavior.
The reader by now will have understood that optimizing, rationalexpectations models do not entirely eliminate the need for side assumptions not grounded in economic theory.
FURTHER OBSERVATIONS ON THE RATIONALITY ASSUMPTION In addition to the limitations mentioned above, however, there are two theoretical limitations of the L-G model that may partially explain the empirical results of the previous section.
Davis and North do not generalize from the facts of experience; rather, they attempt to construct a model based on assumptions about how economic agents would behave if they acted rationally in their self-interest.
The general theme of this section has been to issue a warning that rational-expectations, optimizing models will not be able to save us entirely from the ad hoc assumptions and interpretations made in applied work.
It is no wonder that, when we seek to explain with economic models very specific behavior, economists tend to raise the ire of people who view non-rational, non-determinant forms of behavior as dominant in human experience.
Only one class of models is considered here, and the criticism of the models in this class does not necessarily apply to rational expectations models that are not in this class.4 2.
The working hypothesis of this essay is the latter: These economic or, as they are sometimes called, rational choice models are not and perhaps cannot be sufficiently restrictive to qualify as explanations of prevailing rule structures.
When rationality with respect to overall behavior is introduced into a model with rational expectations, the key property of the RE models regarding the ineffectiveness of anticipated government actions on real output is reversed.
The RE models thus have the odd characteristic that the economic agents in the models are rational with respect to their expectations but not rational with respect to their overall behavior.
The expectations reflected by our model Leuthold and Hartmann Reply 587 are considered rational since they depend on the same things as suggested by economic theory and incorporate available information.
To give the model some content, we will also make the following minimal rationality assumption for a single agent, which is even weaker than assuming a competitive or rational expectations equilibrium.
Our notion of rational expectations equilibrium requires that the agents hold simplified models and that these models are the simplified models which best fit the data that is generated.
Contending that a rational model contains agents whose expectations correspond to the model’s predictions, and moreover, that those agents have the “true” model of the system asserts considerable confidence in the veracity of one’s own theory.
The model of Section II illustrates that it is possible that the policy-ineffectiveness results of the rational expectations model will not hold true when more realistic market structures are analyzed.
These physical and biological models can be contrasted with economic models based on the assumption that agents are rational, in that they make purposeful decisions with well-defined objectives.
INTRODUCTION IT IS NO LONGER NOVEL to suggest that standard economic models make overly strong rationality assumptions.2 Unfortunately, taking account of this criticism is no easy task.
Despite the fact that such models represent an innovative approach to the relaxation of unbounded rationality assumptions, they suffer from two major shortcomings.
It is often argued that if the predictions of an economic model based on rational behaviour are not falsified by real life data, then the model in question may be useful in obtaining some understanding of the real economic world and in the formulation of policy.
For this reason we specify a more general model, the GCM, in which the rationality assumption is left out, allowing us to test the implications of that assumption.
6Such models reflect a rational expectations view of Keynes’ famous “beauty contest” metaphor, that successful investors must base their investments on their expectations of others’ expectations of value, rather than solely on their own estimates of value.
The main purpose of the paper is the second one: within the context of the model, I show that the infinite regress problem, properly interpreted, does not mean that modeling limited rationality by the choice of optimal decision procedures is doomed.
The standard model is periodically questioned by empirical observa tion, inducing researchers to seek bounded rationality models that explain the empirical puzzle.
Bharath Arunachalam, Shida R. Henneberry, Jayson L. Lusk , F. Bailey Norwood
0.794
The rational solution of our model, which is based on the assumption of individual rationality and rational expectations, is compared with actual behavior in a laboratory experiment.
Thorsten Hens , Klaus Reiner Schenk-Hoppé, Bodo Vogt
0.786
In these models, a much looser sense of rationality is appropriate, and the bounded rationality that is assumed needs to be justified by a combination of introspection, empirical evidence, and behavioral economics work.
It could be argued that our model even satisfies this stronger definition of rationality if it is a reduced form of a more complex model, in which individuals are acting to protect themselves against possible mis-specifications of the model.
Though the rational choice model in its simplest form leads to the prediction that “do” will be the dominant strategy, the evidence is strong that societies often manage to avoid such “destructive rationality.
For presentational simplicity, we refer to this benchmark as the rational-actor model, but we emphasize that this standard model assumes both rationality and zero cognition costs.
Variations on the Theme Changing Some of the Rationality Assumptions The realism of some of the assumptions of the model can be questioned, for instance, that savers do not act with the rationality I have assumed.
In line with the “rationalizability” principles, iterated consequences of the CK assumption are derived and exploited in order to determine predictions of economic agents8 that, hence, are “anchored in CK.”
Since many economists are skeptical of the rationality assumptions used in structural modeling, we also estimate two models in which bidders are not perfectly rational.
But the rationality model continues to provide the basic framework even for these models, in which the agents are “fully rational, except for …” some particular deviation that explains a family of anomalies.
Critics of the behavioral model presented here may argue that the comparison between the rational and the behavioral model is unfair for the rational model.
MARCO BATTAGLINI , REBECCA B. MORTON, THOMAS R. PALFREY
0.790
Because this model does not assume any higher-level reflection about the rationality or best response of the opponent, it provides a contrasting benchmark to a model of full, commonly known rationality.
Caleb A. Cox , Matthew T. Jones, Kevin E. Pflum , Paul J. Healy
0.784
This branch of economics research has raised important questions about the rationality of individual behavior and has inspired a variety of theoretical alternatives to standard models.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Shachar Kariv, Dan Silverman
0.775
1 1 Critics of the heuristic model presented here may argue that the comparison between the rational and the heuristic model is unfair for the rational model.
If we are to argue that our models must be based on individuals who are «rational» then we have to specify the links between preferences, expectations and choices.
It is possible to explain all these deviation from the prediction of the models with simple notions consistent with the behaviour of a self-interested rational utility maximiser.
Here, we attempt to differentiate between five explanations offered by the literature; the first three are consistent with rational models, and the latter two with behavioral models.
Although Propositions 1 and 2 are of some independent interest, their primary usefulness in this paper lies with their establishing the precise connections between the two benchmark models of rational choice and the behavioral model that is developed below.
It is often argued that if the predictions of an economic model based on rational behaviour are not falsified by real life data, then the model in question may be useful in obtaining some understanding of the real economic world and in the formulation of policy.
This branch of economics research has raised important questions about the rationality of individual behavior and has inspired a variety of theoretical alternatives to standard models.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Shachar Kariv, Dan Silverman
0.819
Section II provides the rationale behind some assumptions made in the formalization of the model and discusses some interesting properties of the economy thus far depicted.
Only one class of models is considered here, and the criticism of the models in this class does not necessarily apply to rational expectations models that are not in this class.4 2.
The reader by now will have understood that optimizing, rationalexpectations models do not entirely eliminate the need for side assumptions not grounded in economic theory.
FURTHER OBSERVATIONS ON THE RATIONALITY ASSUMPTION In addition to the limitations mentioned above, however, there are two theoretical limitations of the L-G model that may partially explain the empirical results of the previous section.
The models discussed in the literature include extrapolative, adaptive, and rational hypotheses associated with Goodwin, Cagan, Koyck and Nerlove, and Muth, respectively.
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SOME EXTENSIONS In this section we discuss more fully the justification for some of the key assumptions of our model and the potential implications of dropping them.
Only in this way is it possible for the formal structure-the mathematics-not to overshadow the contents-the economics-and to raise again the initial specifications or the role of the model when the results are apparently contradictory to the starting hypotheses or when the model reveals such a high variablity in behavior.”
In an attempt to create a benchmark for future works, the two authors associate to practically each step of the model a theoretical explanation that places their modelling choices in the wider theoretical economic debate.
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In Section III we show how various specific models can be derived from this framework, and we summarize the major qualitative implications of a number of them, as set forth in the appendix.
There is a whole host of economic models prepared today, and in such a variety, that it would seem expedient to determine the nature of our models within this spectrum.
In this author’s view, there is nothing to suggest that such an outcome is inadmissable; it is perfectly possible that, in a particular case, economists are not possessed of the true model.
This epistemological issue is, of course, familiar to economists, and we certainly do not mean to deny that models such as the one presented here can be of substantial value for many kinds of important policy decisions.
3 We abstract from the very difficult question of what constitutes a true model and concentrate on the relevant empirical notion of an appropriate model as defined herein.
“The prevailing methodological mood is not only highly protective of received economic theory, it is also ultrapermissive within the limits of the ‘rules of the game’: almost any model will do provided it is rigorously formulated, elegantly constructed, and promising of potential relevance of real-world situations.
I N T R O D U C T I O N Economic researchers are frequently faced with the task of choosing between alternative model specifications on the basis of empirical estimation, since theoiy itself seldom predicates an appropriate functional form.
The Canadian Journal of Economics / Revue canadienne d’Economique
Allan W. Gregory, Michael McAleer
0.817
Top sentences 1990-1999
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Only in this way is it possible for the formal structure-the mathematics-not to overshadow the contents-the economics-and to raise again the initial specifications or the role of the model when the results are apparently contradictory to the starting hypotheses or when the model reveals such a high variablity in behavior.”
Introduction One of the continuing controversies that divide economic theorists is the question of how to regard results obtained from models incorporating particular functional forms.
SOME EXTENSIONS In this section we discuss more fully the justification for some of the key assumptions of our model and the potential implications of dropping them.
Section II describes and solves a simple model which captures this reasoning, and in Section III we discuss the main implications of the model and their correspondence to the existing empirical literature.
In an attempt to create a benchmark for future works, the two authors associate to practically each step of the model a theoretical explanation that places their modelling choices in the wider theoretical economic debate.
Journal of Economic Literature, as it sum- An appealing property of such models is marizes the key principles to be r eexamined that one can meaningfully define anchored through the lens of imperfect knowledge.
Although in economic sciences such a situation is neither rare nor necessarily unwelcome, still it seems important to understand what the alternative modeling assumptions imply and how close they come to reality.
The cluster gathers 2912 sentences from our corpus. It represents 1.8% of all the sentences selected over the whole period.
The community exists from 1970 to 1979.
The most recurring authors are Robert L. Heilbroner (21 sentences), E. K. Hunt (20 sentences), E. J. Mishan (18 sentences), Warren J. Samuels (18 sentences), Horst K. Betz (16 sentences), J. Kornai (16 sentences), R. A. Gonce (16 sentences), Stephen J. Turnovsky (14 sentences), Ferenc Jánossy (13 sentences), Martin Shubik (13 sentences).
The most recurring journals are Journal of Economic Issues (259 sentences), The American Economic Review (250 sentences), Acta Oeconomica (180 sentences), Journal of Political Economy (156 sentences), American Journal of Agricultural Economics (108 sentences).
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Top sentences with ‘rational’ or ‘rationality’ of the cluster
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An economic prediction at the conceptual level can be quite correct; however, the evidence may never show this to be true since the rational component of behavior is continually overwhelmed by the nonrational components.
Being interested in a state of equilibrium, it is not easy to explain the existence of an object whose holding does not generate an obvious return so long as one assumes rational economic agents.
Since their approach is implicitly a game theoretic one, viewing economic planning not as a game against nature but against rational economic agents, it is not surprising that they arrive at conclusions which differ from those obtained within the framework of optimal control.
Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and Theoretical Economics
Reinhard Neck
0.733
It is no novelty, either in our own economic practice or in that of others, that we cannot exactly assess in advance our possibilities or their limits, that the contradictions among the various requirements - which are correct in themselves - escape our notice.
Allowing for Lucas’ point, which is based on the assumption of “rational” expectations on the part of the actors whose behavior is summarized in the IS and LM curves, would require analyzing the changes in the relevant behavior and would thereby take the analysis too far afield from the intended focus of this paper.
Benjamin M. Friedman, James Duesenberry , William Poole
0.719
The property that anticipated government actions have no effect on real output is thus reversed when one considers a model with both rational expectations and maximizing agents.
It is the natural course of progress in economic theory to derive empirical propositions under successively weaker and less restrictive assumptions about human behavior.
Among the 50 closest sentences to the cluster’s centroid, 0% mention the terms ‘rational’ or ‘rationality’
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The validity and usefulness of any economic theory does not depend solely on its immediate empirical signifi cance, but depends on how it eventually leads to more understanding of the complex workings of the economy.
It is no novelty, either in our own economic practice or in that of others, that we cannot exactly assess in advance our possibilities or their limits, that the contradictions among the various requirements - which are correct in themselves - escape our notice.
It is the purpose of this section to expound such an interpretation, to consider some of the difficulties in sustaining it, and briefly to discuss its significance for economic theorizing.
It is equally necessary to understand that on the one hand the postulates of economic analysis are not properly those of science, but exist and function at a “higher” level altogether, and on the other hand that the analysis of human behavior cannot stop with the economic without leaving out the larger and more important part of realities of the case, but must still go on to still higher levels.
Attempts are made to extend this conceptual framework, unify it, examine its background in the history of economic ideas and indicate its place in the recent theoretical discussion.
Within the context of the present discussion, we cannot but mention an additional facet of modern economic theories that will come to occupy the attention of the quantitative economic historian.
IN THIS brief essay I have picked out certain particular strands of thought, on the basis partly of theoretical significance and partly of relationship to economic policy.
The cluster gathers 2665 sentences from our corpus. It represents 1.65% of all the sentences selected over the whole period.
The community exists from 1970 to 1989.
The most recurring authors are Bennett T. McCallum (55 sentences), David Laidler (51 sentences), Robert P. Flood (37 sentences), Peter M. Garber (33 sentences), Stephen J. Turnovsky (28 sentences), Allan H. Meltzer (26 sentences), William Fellner (26 sentences), Robert J. Barro (24 sentences), Robert J. Gordon (22 sentences), Christopher A. Sims (21 sentences).
The most recurring journals are Journal of Money, Credit and Banking (548 sentences), The American Economic Review (265 sentences), Journal of Political Economy (247 sentences), Southern Economic Journal (115 sentences), The Economic Journal (113 sentences).
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Distribution of sentences over time
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“The Monetary Mechanisms in the Light of Rational Expectations,” Rational Expectations and Economic Policy.
I accept the basic proposition of the rational expectations theory that agents in the market must not be assumed simply to extrapolate mechanically the current rate of inflation or the recent acceleration of the rate of inflation….
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The paper concludes with discussions of the nature of the rational expectations solution chosen and of the mechanism producing the nonneutrality of money.
C O N C L U S I O N Assumptions about what individuals know, which lie behind theories of the optimum money supply, ‘rational’ expectations, and Ricardian equivalence theorems seem to eliminate the possibility of discretionary acts of policy.
One way out, which we support, is not to insist on the homogeneity assumption as a necessary condition of rationality or the absence of money illusion but to treat the homogeneity assumption as an empirical hypothesis.
that accelerations in money and prices are not thrust upon society by a capricious or self-serving government, but rather represent a rational response of government to the political pressure exerted by potential beneficiaries of inflation.”
The hypothesis advanced here provides an explanation grounded in a fundamental principle of economic analysis the assumption that consumers act rationally which explains *I am grateful to Michael Hamburger, Michael Bordo, Benjamin Klein, T. J. Meeks, Arthur Okun, and members of the Columbia University Money and Banking Workshop for many comments and suggestions.
It may be useful to describe an alternative method of viewing the basic modification proposed in this paper.8 The demand for money could be explicitly written as a function of the short-term interest rate i, whereas investment rational expectations postulate.
I accept the basic proposition of the rational expectations theory that agents in the market must not be assumed simply to extrapolate mechanically the current rate of inflation or the recent acceleration of the rate of inflation….
CONCLUSION The key ingredients of “modern” monetary models are the distinction between anticipated and unanticipated money changes and the assumption of rational expectations.
George L. Perry , William Fellner , Robert J. Gordon , James Duesenberry, Robert E. Hall , Christopher Sims , William Nordhaus , Robin Marris , Thomas Juster , John Shoven , Benjamin Friedman, James Tobin
0.849
It may be useful to describe an alternative method of viewing the basic modification proposed in this paper.8 The demand for money could be explicitly written as a function of the short-term interest rate i, whereas investment rational expectations postulate.
Recent contributions’ have suggested that the behavior of real output is invariant to the money supply rule chosen by the monetary authority if expectations are formed rationally.
The third thread in this strand of moneta- rism is work by R. E. Lucas, Jr., Thomas Sargent, and Neil Wallace, and others on the rational expectations money models, in which the short-run neutrality of money is assured, aside from temporary expectations effects.
that accelerations in money and prices are not thrust upon society by a capricious or self-serving government, but rather represent a rational response of government to the political pressure exerted by potential beneficiaries of inflation.”
The paper concludes with discussions of the nature of the rational expectations solution chosen and of the mechanism producing the nonneutrality of money.
CONCLUSION The key ingredients of “modern” monetary models are the distinction between anticipated and unanticipated money changes and the assumption of rational expectations.
C O N C L U S I O N Assumptions about what individuals know, which lie behind theories of the optimum money supply, ‘rational’ expectations, and Ricardian equivalence theorems seem to eliminate the possibility of discretionary acts of policy.
It may be useful to describe an alternative method of viewing the basic modification proposed in this paper.8 The demand for money could be explicitly written as a function of the short-term interest rate i, whereas investment rational expectations postulate.
CONCLUSION The key ingredients of “modern” monetary models are the distinction between anticipated and unanticipated money changes and the assumption of rational expectations.
The cluster gathers 549 sentences from our corpus. It represents 0.34% of all the sentences selected over the whole period.
The community exists from 1970 to 1979.
The most recurring authors are Edmund S. Phelps (33 sentences), James E. Pesando (19 sentences), Thomas J. Sargent (18 sentences), John B. Taylor (16 sentences), William Poole (14 sentences), William J. Frazer, Jr. (13 sentences), Douglas K. Pearce (12 sentences), Robert J. Gordon (12 sentences), Bennett T. McCallum (11 sentences), Edgar L. Feige (11 sentences).
The most recurring journals are Journal of Political Economy (75 sentences), Journal of Money, Credit and Banking (74 sentences), The American Economic Review (64 sentences), Brookings Papers on Economic Activity (61 sentences), The Journal of Finance (28 sentences).
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Distribution of sentences over time
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1 This research was supported by a National Science Foundation grant on Rational Expectations and Monetary Policy.
As the outline of the scope for maneuverability by the monetary authority suggests, experimentation with rational expectations and hence the study of instability in the structure of the “pure” rational expectations model give increasing attention to expectations, intervening psychological forces, and policy control through knowledge of these forces.
Though we have given some consideration to the implications of a model relying on “rational expectations” this should not be construed as an indication that we view such a model per se as an adequate description of the dynamics of inflation.
Rational Expectations The basic proposition of rational expectations is that consistent bias in expected inflation is inconsistent with rationality of economic agents.
The growing evidence that the expectations relevant to stock price determination are, in effect, rational serves to cast doubt on the proposition that market forecasts of inflation might not be rational.
For the purposes of this paper, price expectations will be defined as rational if they fully incorporate the information contained in current and past rates of inflation.
This study was a modest attempt to study the validity of a particular version of the rational expectations hypothesis which posits that the expected rate of inflation in each period is an unbiased prediction of the actual inflation rate subsequently observed.
Feige, Edgar L., and Pearce, Douglas K. “Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?”
As the outline of the scope for maneuverability by the monetary authority suggests, experimentation with rational expectations and hence the study of instability in the structure of the “pure” rational expectations model give increasing attention to expectations, intervening psychological forces, and policy control through knowledge of these forces.
“Rational expectations” theories, which have received a good deal of attention from economists in recent years, assume a considerable degree of sophistication among workers and employers about ongoing inflation rates.
In the absence of satisfactory direct evidence on the inflation rates that people expect, Sargent explores the implications of an alternative assumption, “rational expectations.”
For the purposes of this paper, price expectations will be defined as rational if they fully incorporate the information contained in current and past rates of inflation.
This study was a modest attempt to study the validity of a particular version of the rational expectations hypothesis which posits that the expected rate of inflation in each period is an unbiased prediction of the actual inflation rate subsequently observed.
Next comes a description of the behavior of the model embodying “rational” expectations; I show that under this assumption, the natural unemployment rate hypothesis and a version of Fisher’s theory about the interest rate and expected inflation form a package.
Feige, Edgar L., and Pearce, Douglas K. “Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?”
The cluster gathers 22190 sentences from our corpus. It represents 13.7% of all the sentences selected over the whole period.
The community exists from 1980 to 2019.
The most recurring authors are Warren J. Samuels (122 sentences), Tony Lawson (110 sentences), Larry Dwyer (96 sentences), Geoffrey M. Hodgson (92 sentences), David Dequech (75 sentences), Sheila C. Dow (69 sentences), Kurt Dopfer (68 sentences), David Colander (65 sentences), Philip Mirowski (60 sentences), Robert Sugden (59 sentences).
The most recurring journals are Journal of Economic Issues (2236 sentences), Cambridge Journal of Economics (1520 sentences), The American Economic Review (1232 sentences), Journal of Post Keynesian Economics (922 sentences), The American Journal of Economics and Sociology (878 sentences).
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critical_realism
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business_school
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critical_realist
0.0007085
neoclassical
0.0006743
economic_intuition
0.0006635
realist
0.0006557
Top terms 2010-2019
Token
TF-IDF
doi
0.0016632
issn
0.0015561
issues_association
0.0013633
mohr
0.0013353
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siebeck
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royal_economic
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evolutionary_economics
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theoretical_economics
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
It is now commonplace, and fairly uncontroversial in our field, to assume that all actors behave rationally, or nearly so, and that poor outcomes are more likely the product of maximizing responses to inefficient or perverse constraints.
A number of competing explanations have been proposed, some of which reject the present value model, some which reject rational expectations, and others which reject the assumption of rational optimising agents.
The “careful” economist must take pains not to confuse the behavior of perfectly rational persons with that of actual persons, for in a great many instances, the latter will deviate from the former in considerable degree, though not so much as to render economics useless.
Since ‘normal science’ in economics primarily involves deriving the testing implications of the assumption of rationality, it seems natural to yield to this temptation by looking for areas in which this approach may break down in some important way.
As opposed to various assumptions of the neoclassical homo oeconomicus, human beings are not “perfectly informed” but rather are subject to strong restrictions of information processing in the cognition, calculation, and selection processes required for “rational” action.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Hartmut Esser
0.779
In other words, the claim that the rational actor approach offers a first-round presumption that market and political behav iour will be the same?that the “onus of proof” lies with those who dispute behavioural symmetry?turns out to depend on what I regard as a very strong empirical claim about the relation between instrumental and intrinsic net benefits.
Reading again that work under this spirit, will provide some further arguments to all those who hold textbook type formal economic rationality as responsible for disorienting social science to “false paths for 200 years”31.
Cahiers d’économie politique / Papers in Political Economy
Michel S. Zouboulakis
0.776
Subsequent sections address the problem of reductionism in economic theory, and show that mainstream explanations of economic and institutional phenomena in terms of given, rational individuals are not as robust as is often supposed.
His concern not only with the importance of institutional changes, but also with a more accurate view of human behavior than that suggested by today’s neoclassical economic rationality, is presented in two parts.
Historically, a recurrent theme in economics is that the values to which people respond are not confined to those one would expect based on the narrowly defined canons of rationality.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Carl Hampus Lyttkens
0.754
Mainstream economic theory, with its emphasis on equilibrium outcomes from hyper-rational representative households and firms, encounters enormous difficulties in jointly explaining such a rich list of phenomena.
Recently, economists and psychologists have begun a conversation on whether the rationality paradigm in economics can profit from empirical evaluation.
Because these insights about actual behaviour often seem at odds with the dominant, rational choice or subjective expected utilising model, it is natural to wonder what they might mean for economics more generally.
Rationality into Economics 541 would be bad judgment to bet confidently against the potential insights of a research line that has generated so much excitement among economic theorists.
While accepting the theoretical observation underlying Lucas’ critique, Sims challenges rational expectations econometrics, and does so by appealing to the very same general body of dynamic economic theory that Lucas used.
While accepting the theoretical observation underlying Lucas’ critique, Sims challenges rational expectations econometrics, and does so by appealing to the very same general body of dynamic economic theory that Lucas used.
Value judgments of the sort relevant to the economist’s acceptance decisions can be defended in a rational manner, the ultimate justification for any such estimate being the extent to which the consequences expected to result from an acceptance decision promote or frustrate the satisfaction of human needs and interests.
David A. Hensher, Peter O. Barnard, Truong P. Truong
0.737
In this section I shall relax a few of the assumptions that I think most economists regard as plausible interpretation or convenient for certain purposes, but not essential in the whole logical structure, appealing to certain cases where I think economists generally would agree that they might not be applicable.
I hope that other readers will understand that my result is to be taken in the context of understanding economic phenomena and arguing about their explanation.
Since the publication of these papers, many papers have been published that have described setups in which the choice of systematic policy matters, even when rational expectations prevail.
On the other hand, since the non-market-clearing paradigm is consistent with a number of empirical phenomena and with rational-expectations theories of policy effectiveness it may be premature to discard its most basic insights.
Put differently, the authors have taken a rational, fully informed neoclassical perspective as their point of departure, and in Section I of my comments I will by-pass this issue to focus on standard issues of theory and estimation.
A number of competing explanations have been proposed, some of which reject the present value model, some which reject rational expectations, and others which reject the assumption of rational optimising agents.
The “careful” economist must take pains not to confuse the behavior of perfectly rational persons with that of actual persons, for in a great many instances, the latter will deviate from the former in considerable degree, though not so much as to render economics useless.
Since ‘normal science’ in economics primarily involves deriving the testing implications of the assumption of rationality, it seems natural to yield to this temptation by looking for areas in which this approach may break down in some important way.
As opposed to various assumptions of the neoclassical homo oeconomicus, human beings are not “perfectly informed” but rather are subject to strong restrictions of information processing in the cognition, calculation, and selection processes required for “rational” action.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Hartmut Esser
0.779
Subsequent sections address the problem of reductionism in economic theory, and show that mainstream explanations of economic and institutional phenomena in terms of given, rational individuals are not as robust as is often supposed.
His concern not only with the importance of institutional changes, but also with a more accurate view of human behavior than that suggested by today’s neoclassical economic rationality, is presented in two parts.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Carl Hampus Lyttkens
0.754
Recently, economists and psychologists have begun a conversation on whether the rationality paradigm in economics can profit from empirical evaluation.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Douglass C. North
0.746
The kind of relations assumed to be relevant for an explananation of “economic outcomes” differs in scope and structure from the usual “rationality of market decisions.”
It is now commonplace, and fairly uncontroversial in our field, to assume that all actors behave rationally, or nearly so, and that poor outcomes are more likely the product of maximizing responses to inefficient or perverse constraints.
In other words, the claim that the rational actor approach offers a first-round presumption that market and political behav iour will be the same?that the “onus of proof” lies with those who dispute behavioural symmetry?turns out to depend on what I regard as a very strong empirical claim about the relation between instrumental and intrinsic net benefits.
Reading again that work under this spirit, will provide some further arguments to all those who hold textbook type formal economic rationality as responsible for disorienting social science to “false paths for 200 years”31.
Historically, a recurrent theme in economics is that the values to which people respond are not confined to those one would expect based on the narrowly defined canons of rationality.
Mainstream economic theory, with its emphasis on equilibrium outcomes from hyper-rational representative households and firms, encounters enormous difficulties in jointly explaining such a rich list of phenomena.
This approach has the advantage that its findings are grounded in economic theory, making the assumption that people understand their economic environment and react rationally to it.
They did not claim that abstract reasoning has no place in economic reason ing but that its use in economics is necessarily limited: the ability to constantly amalgamate «logic and intuition and wide knowledge of facts» is the crucial factor in economic interpretation.
Because these insights about actual behaviour often seem at odds with the dominant, rational choice or subjective expected utilising model, it is natural to wonder what they might mean for economics more generally.
Rationality into Economics 541 would be bad judgment to bet confidently against the potential insights of a research line that has generated so much excitement among economic theorists.
3.4 Conclusions Competition economists, particularly those of us of a certain age, tend not to like behavioural economic explanations: too messy, too imprecise and not founded on traditional rationality.
Chris Doyle , Alex Moore , Borbala Szathmary, Mike Walker
0.744
In each of these cases, what is at issue is the determination of the allocation of investment by prices that may not be?and often patently are not?the result of rational behavior.
E-mail: gigerenzer@mpib-berlin.mpg.de nomics with «more realistic assumptions» is perhaps the guiding theme of behavioral economists, as behavioral economists undertake eco nomic analysis without one or more of the unbounded rationality assumptions.
Thus, the economic process in mainstream economics is predicated on a universal identity of individuals as independent rational2 agents in a social context, where the social is a “given” — i.e., unchanging, thus often considered irrelevant.
Explainawaytions In the process of making economics more mathematically rigorous after World War II, the economics profession appears to have lost its good intuition about human behavior.
The limits of mainstream economic reasoning are methodological, imposed by the insistence that economic behavior must be analyzed mathematically as the relationship of autonomous agents, each free to make decisions, but always outside of any historical or social context.
Among the 200 closest sentences to the cluster’s centroid, 4.5% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Reading again that work under this spirit, will provide some further arguments to all those who hold textbook type formal economic rationality as responsible for disorienting social science to “false paths for 200 years”31.
Cahiers d’économie politique / Papers in Political Economy
Michel S. Zouboulakis
0.838
In some cases economic theory has rationalized these findings.20 Where they have not been so explained, there is an important challenge to economic theorists and others to do so.
His concern not only with the importance of institutional changes, but also with a more accurate view of human behavior than that suggested by today’s neoclassical economic rationality, is presented in two parts.
Historically, a recurrent theme in economics is that the values to which people respond are not confined to those one would expect based on the narrowly defined canons of rationality.
3.4 Conclusions Competition economists, particularly those of us of a certain age, tend not to like behavioural economic explanations: too messy, too imprecise and not founded on traditional rationality.
Chris Doyle , Alex Moore , Borbala Szathmary, Mike Walker
0.814
Because these insights about actual behaviour often seem at odds with the dominant, rational choice or subjective expected utilising model, it is natural to wonder what they might mean for economics more generally.
The “careful” economist must take pains not to confuse the behavior of perfectly rational persons with that of actual persons, for in a great many instances, the latter will deviate from the former in considerable degree, though not so much as to render economics useless.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
An answer to an economic question can be obtained only at the cost of making some assumptions; some may be ‘natural’ economic assumptions, but others are formal, purely mathematical assumptions, and such assumptions may be viewed as objectionable by those who emphasize economic intuition.
Here I want to take up three issues that I think pose serious problems, all of which have modern manifestations: the methodology of intuitively obvious assumptions, the relegation of facts to be illustrations of theoretical propositions rather than as tests of their validity, and the belief in the general applicability of economic theory without the need for specific context.
David A. Hensher, Peter O. Barnard, Truong P. Truong
0.856
Economic theory has always to be mixed with a large dollop of fact before prescriptions for action can be framed; but the facts are usually obscure, disputed, seen through different eyes against a different experience of life and stretching far beyond the limited economic context within which the economist seeks to analyze them.
My explications are concerned with the bordering areas of economics, scientific methodology, and epistemology, and are, therefore, necessarily, rather abstract.
From this results the dilemma of economic theory which cannot foreswear abstractions and which must therefore chose and decide what is essential and what may be neglected.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Karl Häuser
0.844
While each one of these issues could be addressed more rigorously, this section focu on the economic intuition derived from our previous analysis rather than deriving formal theoretical results.
I hope that other readers will understand that my result is to be taken in the context of understanding economic phenomena and arguing about their explanation.
This view was expressed at a presentation of this work at our Undergraduate Economics Society at our university, which approximately 30 students attended.
Bruce A. Weinberg , Masanori Hashimoto, Belton M. Fleisher
0.839
Reading again that work under this spirit, will provide some further arguments to all those who hold textbook type formal economic rationality as responsible for disorienting social science to “false paths for 200 years”31.
Cahiers d’économie politique / Papers in Political Economy
Michel S. Zouboulakis
0.838
So prevalent has been the orthodox general comprehension of economics that a presentation such as this one usually prompts the critical contention that what is being said here might be significant in some sense or other, but it just is not economics.
David A. Hensher, Peter O. Barnard, Truong P. Truong
0.856
Economic theory has always to be mixed with a large dollop of fact before prescriptions for action can be framed; but the facts are usually obscure, disputed, seen through different eyes against a different experience of life and stretching far beyond the limited economic context within which the economist seeks to analyze them.
My explications are concerned with the bordering areas of economics, scientific methodology, and epistemology, and are, therefore, necessarily, rather abstract.
From this results the dilemma of economic theory which cannot foreswear abstractions and which must therefore chose and decide what is essential and what may be neglected.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Karl Häuser
0.844
I hope that other readers will understand that my result is to be taken in the context of understanding economic phenomena and arguing about their explanation.
So prevalent has been the orthodox general comprehension of economics that a presentation such as this one usually prompts the critical contention that what is being said here might be significant in some sense or other, but it just is not economics.
Going beyond this particular construction, I attempt to bring into sharper focus the nature of the underlying conceptual problem as well as its significance for economic analysis.
Although we are unable to complete a comprehensive comparative study of competing paradigms in this limited space, we attempt to point out contrasting or complementary economic interpretations at appropriate places within the argument.
Robert B. Ekelund, Jr., Robert F. Hébert , Robert D. Tollison
0.823
In some cases economic theory has rationalized these findings.20 Where they have not been so explained, there is an important challenge to economic theorists and others to do so.
Though it is true that there is no direct, non-theoretical, access to the ‘outside’ world, and though it is also true that the competing traditions envisage different facts and ask different questions, some important points about the day-to-day practice of theorizing in economic theory must nevertheless be taken into account.
Economic behavior is more complex than our thoughts about it; our thoughts, however, are more comprehensive than standard theory, and standard theory is more comprehensive than mathematical economics.
The kind of relations assumed to be relevant for an explananation of “economic outcomes” differs in scope and structure from the usual “rationality of market decisions.”
I shall therefore attempt to briefly trace the origin of this view of economics and explain under what circumstances this view is justified and the sort of dilemmas that arise when one has to confront the real world with the traditional views and tools of economists.
Here I want to take up three issues that I think pose serious problems, all of which have modern manifestations: the methodology of intuitively obvious assumptions, the relegation of facts to be illustrations of theoretical propositions rather than as tests of their validity, and the belief in the general applicability of economic theory without the need for specific context.
This view was expressed at a presentation of this work at our Undergraduate Economics Society at our university, which approximately 30 students attended.
Bruce A. Weinberg , Masanori Hashimoto, Belton M. Fleisher
0.839
Reading again that work under this spirit, will provide some further arguments to all those who hold textbook type formal economic rationality as responsible for disorienting social science to “false paths for 200 years”31.
Cahiers d’économie politique / Papers in Political Economy
Michel S. Zouboulakis
0.838
In spite of being apparently well founded in economic theory, this conventional wisdom has been fundamentally challenged by a - large and still increas- * I am indebted to two anonymous referees and the editor for valuable comments and suggestions.
Whether one likes or dislikes the analysis that this work has spawned, this research opens up economics to alternative perspectives and encourages it to ask new and different questions, an enterprise which I believe to be valuable in the long term.
This predilection was preserved in economic theory to a much greater extent than uninformed observers realize, and it is often not clearly perceived by the theorists themselves.”
An answer to an economic question can be obtained only at the cost of making some assumptions; some may be ‘natural’ economic assumptions, but others are formal, purely mathematical assumptions, and such assumptions may be viewed as objectionable by those who emphasize economic intuition.
The Canadian Journal of Economics / Revue canadienne d’Economique
Victoria Zinde-Walsh
0.860
While each one of these issues could be addressed more rigorously, this section focu on the economic intuition derived from our previous analysis rather than deriving formal theoretical results.
A number of economists gather and are faced with the problem of choosing between two theories, A and B, which appear to explain some occurrence equally well.
The normative story that is told in most economic textbooks is not self explanatory, and it is not the only possible normative view that one might apply to economic issues.
This article exists because for the most part the economics profession has little more than a passing interest in philosophical questions; it tends to presuppose one or the other answer unknowingly.
Surely, the long term goal of economics is to see every premise substantiated by compelling empirical evidence, and the impor tance of efforts to establish such evidence from sources residing outside the model is far from being overlooked by this author.
The cluster gathers 1809 sentences from our corpus. It represents 1.12% of all the sentences selected over the whole period.
The community exists from 1980 to 1999.
The most recurring authors are David E. Runkle (49 sentences), Michael P. Keane (39 sentences), Pami Dua (30 sentences), Roy Batchelor (27 sentences), Roman Frydman (24 sentences), Frederic S. Mishkin (18 sentences), Arlington W. Williams (16 sentences), J. S. Shonkwiler (16 sentences), Robert Waldmann (15 sentences), Tilman Ehrbeck (15 sentences).
The most recurring journals are The American Economic Review (182 sentences), Journal of Money, Credit and Banking (122 sentences), The Economic Journal (113 sentences), The Review of Economics and Statistics (97 sentences), Journal of Post Keynesian Economics (87 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
rational_expectations
0.0070957
forecasts
0.0049847
expectations
0.0042714
forecast
0.0033211
perfect_foresight
0.0027771
forecasters
0.0024566
forecasting
0.0018724
rational_forecasts
0.0018614
forecast_errors
0.0018568
expectations_hypothesis
0.0012244
forecast_error
0.0011651
rational_forecast
0.0011651
forecast_rationality
0.0011503
futures
0.0011195
foresight
0.0010117
models
0.0010010
predictions
0.0009858
model
0.0009612
time_series
0.0008451
foresight_equilibrium
0.0008018
Top TF-IDF terms describing the community for each time window
Top terms 1980-1989
Token
TF-IDF
rational_expectations
0.0075798
forecasts
0.0068558
forecast
0.0042112
expectations
0.0038930
perfect_foresight
0.0033329
forecasting
0.0032105
rational_forecasts
0.0018859
futures
0.0018852
forecast_errors
0.0017121
model
0.0014328
agents
0.0013513
rational_forecast
0.0012966
expectations_hypothesis
0.0012759
foresight
0.0012491
forecast_error
0.0011348
Top terms 1990-1999
Token
TF-IDF
forecasts
0.0101573
forecasters
0.0079342
rational_expectations
0.0075411
forecast
0.0073661
perfect_foresight
0.0037853
rational_forecasts
0.0034823
forecasting
0.0034795
forecast_errors
0.0032587
expectations
0.0030697
forecast_rationality
0.0026726
forecast_error
0.0023665
rational_forecast
0.0022532
foresight
0.0018247
expectations_hypothesis
0.0015838
agents
0.0015188
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
In “good” cases, the rational-expectations forecast will appear as the necessary outcome of agents’ mental activities which have clear and appealing economic grounds; the rational-expectations outcome will then be explained and not merely assumed.
In the context of a nonstochastic fix-price model, the particular sense in which the term rational expectations has come to be understood has extremely strong implications: all individuals have perfect foresight not only concerning the level of wages and prices that will prevail in the future and the constraints that will be binding, but also concerning the magnitude of those constraints.
This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium.
Even if individuals are subject to bounded rationality, divergences from full rationality at the individual level may cancel out in the aggregate, so that aggregate behaviour is such that it is as if individuals can forecast rationally.
This result depends critically on knowledge of the future long-run equilibrium; knowledge entailed by the rational expectations hypothesis, yet knowledge forbidden to mortals facing an uncertain future.
INTRODUCTION The rational expectations hypothesis asserts that economic agents anticipate the future according to the true probability distribution of future events.
We show that the bulk of objections concerning earlier rational models can be attributed not to rational decision making, but rather to the common implicit assumption of perfect foresight.
While the authors claim that their estimates are consistent with “economic theory”-meaning the idea of rational, foresighted people-they have made numerous assumptions that seem at variance with such rationality and foresight.
We list below a number of necessary conditions for rationality that can be developed from this definition, and explain how we have tackled the econometric problems that arise when Blue Chip forecast data are used to test for violations of these conditions.
These models are attractive in imposing some consistency on agents’ forecasts relative to the actual prices delivered by the economy, but the notion of rationality embodied in these models is procedural rather than substantive.
Then the applied economic theories which introduced “rational expectations” will be covered along with the simultaneous generalization of Hicks’ perfect foresight idea to the case of uncertainty.
In the absence of structural change, quasi- rational expectations satisfy the minimal requirement of rational expectations: they are unbiased forecasts of the realized future values.
Although the reasoning may differ, the conclusions reached here share much with those of opponents of “predictivism” in economics, that term meaning a single-minded emphasis on prediction as the quintessential criterion of theory choice.45 At this time, it seems that future work will be directed toward investigating the possibilities for rational theory choice in economics.
“Individual Rationality, Decentralization, and the Rational Expectations Hypothesis,” In lndividual Forecasting and Aggregate Outcomes: “Rational Expectations” Examined, edited by Roman Frydman and Edmund S. Phelps, pp.
This use of rational expectations contrasts markedly with the ad hoc mechanisms used to explain agent’s beliefs about the future in the earlier macroeconomic literature.
The rational expectations hypothesis implies that rational agents make forecasts consistent with those of the underlying economic model, use all available information efficiently in making decisions, and do not make systematic errors.
Shiva S. Makki , Luther G. Tweeten, Mario J. Miranda
0.763
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1980-1989
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In the context of a nonstochastic fix-price model, the particular sense in which the term rational expectations has come to be understood has extremely strong implications: all individuals have perfect foresight not only concerning the level of wages and prices that will prevail in the future and the constraints that will be binding, but also concerning the magnitude of those constraints.
This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium.
Even if individuals are subject to bounded rationality, divergences from full rationality at the individual level may cancel out in the aggregate, so that aggregate behaviour is such that it is as if individuals can forecast rationally.
This result depends critically on knowledge of the future long-run equilibrium; knowledge entailed by the rational expectations hypothesis, yet knowledge forbidden to mortals facing an uncertain future.
These models are attractive in imposing some consistency on agents’ forecasts relative to the actual prices delivered by the economy, but the notion of rationality embodied in these models is procedural rather than substantive.
Then the applied economic theories which introduced “rational expectations” will be covered along with the simultaneous generalization of Hicks’ perfect foresight idea to the case of uncertainty.
In the absence of structural change, quasi- rational expectations satisfy the minimal requirement of rational expectations: they are unbiased forecasts of the realized future values.
Although the reasoning may differ, the conclusions reached here share much with those of opponents of “predictivism” in economics, that term meaning a single-minded emphasis on prediction as the quintessential criterion of theory choice.45 At this time, it seems that future work will be directed toward investigating the possibilities for rational theory choice in economics.
In “good” cases, the rational-expectations forecast will appear as the necessary outcome of agents’ mental activities which have clear and appealing economic grounds; the rational-expectations outcome will then be explained and not merely assumed.
INTRODUCTION The rational expectations hypothesis asserts that economic agents anticipate the future according to the true probability distribution of future events.
We show that the bulk of objections concerning earlier rational models can be attributed not to rational decision making, but rather to the common implicit assumption of perfect foresight.
While the authors claim that their estimates are consistent with “economic theory”-meaning the idea of rational, foresighted people-they have made numerous assumptions that seem at variance with such rationality and foresight.
We list below a number of necessary conditions for rationality that can be developed from this definition, and explain how we have tackled the econometric problems that arise when Blue Chip forecast data are used to test for violations of these conditions.
This use of rational expectations contrasts markedly with the ad hoc mechanisms used to explain agent’s beliefs about the future in the earlier macroeconomic literature.
The rational expectations hypothesis implies that rational agents make forecasts consistent with those of the underlying economic model, use all available information efficiently in making decisions, and do not make systematic errors.
Shiva S. Makki , Luther G. Tweeten, Mario J. Miranda
0.763
Introduction Expectations are said to be rational if they fully incorporate all of the information available to the agents at the time the forecast is made.
An alternative model would emphasize fully rational expectations.9 When perfect foresight is assumed, two differences with the previous analysis emerge.
The two different perfect foresight equilibria that I have described represent alternative ways of modelling rational expectations responses to a regime switch.
Conditions for Rationality We denote by fi t - h t the forecast made by individual i in the forecast month t - h for some variable, the value of which will be known in the month t. Month t is the target month for the forecast, and h the forecast horizon.
Among the 100 closest sentences to the cluster’s centroid, 81% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In “good” cases, the rational-expectations forecast will appear as the necessary outcome of agents’ mental activities which have clear and appealing economic grounds; the rational-expectations outcome will then be explained and not merely assumed.
INTRODUCTION The rational expectations hypothesis asserts that economic agents anticipate the future according to the true probability distribution of future events.
This approach led to the question of whether such forecasts were indeed rational; research on this topic was also directed toward testing the rational expectations assumption.
RATIONALITY, ECONOMIC THEORY, AND FORECASTING METHOD An interesting but hitherto unexplored issue is whether differences in forecast rationality can be attributed to differences in the way forecasts are compiled.
This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium.
Empirical tests of the rational expectations hypothesis using individual forecasts may be biased toward rejecting rationality because they fail to take into account the interplay among forecasters.
In the present paper, we assume that the firm utilizes “economically rational” expectations in making forecasts.8 By economically rational expectations, we mean that the firm uses information in forming expectations not only on past values of the variable being forecast but also on recent changes in major policy actions that are widely known or believed to influence movements in the forecasted variable.
Finally, we examine whether deviations from rationality are associated with the adherence of forecasters to particular economic theories or forecasting methods.
This result depends critically on knowledge of the future long-run equilibrium; knowledge entailed by the rational expectations hypothesis, yet knowledge forbidden to mortals facing an uncertain future.
While the authors claim that their estimates are consistent with “economic theory”-meaning the idea of rational, foresighted people-they have made numerous assumptions that seem at variance with such rationality and foresight.
Many previous studies may be biased against the hypothesis of rationality because they assume that the final revisions of all variables contained in agents’ information sets were known when forecasts were made.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In “good” cases, the rational-expectations forecast will appear as the necessary outcome of agents’ mental activities which have clear and appealing economic grounds; the rational-expectations outcome will then be explained and not merely assumed.
INTRODUCTION The rational expectations hypothesis asserts that economic agents anticipate the future according to the true probability distribution of future events.
The powerful ‘rational expectations’ argument that forecasting rules which imply indefinitely repeated errors will be rejected no longer suffices to tie down long run behaviour.
This approach led to the question of whether such forecasts were indeed rational; research on this topic was also directed toward testing the rational expectations assumption.
“Rational expectations” represent optimal expectations only when a set of restrictive assumptions holds.1 A difficulty with the relevance of the REH is whether it constitutes optimal forecasting behavior when these assumptions do not hold.
RATIONALITY, ECONOMIC THEORY, AND FORECASTING METHOD An interesting but hitherto unexplored issue is whether differences in forecast rationality can be attributed to differences in the way forecasts are compiled.
This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium.
Empirical tests of the rational expectations hypothesis using individual forecasts may be biased toward rejecting rationality because they fail to take into account the interplay among forecasters.
In the present paper, we assume that the firm utilizes “economically rational” expectations in making forecasts.8 By economically rational expectations, we mean that the firm uses information in forming expectations not only on past values of the variable being forecast but also on recent changes in major policy actions that are widely known or believed to influence movements in the forecasted variable.
In such a changing world it is difficult to see what variables it would be “rational” for the investors to grant more weight.32 There exists some evidence for the idea that forecasters do not concur on a single stabilizing sort of expectations model as nicely as the estimates of regressive expectations described above would suggest.
The Canadian Journal of Economics / Revue canadienne d’Economique
Jeremy R. Rudin
0.837
Finally, we examine whether deviations from rationality are associated with the adherence of forecasters to particular economic theories or forecasting methods.
This result depends critically on knowledge of the future long-run equilibrium; knowledge entailed by the rational expectations hypothesis, yet knowledge forbidden to mortals facing an uncertain future.
This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium.
In the present paper, we assume that the firm utilizes “economically rational” expectations in making forecasts.8 By economically rational expectations, we mean that the firm uses information in forming expectations not only on past values of the variable being forecast but also on recent changes in major policy actions that are widely known or believed to influence movements in the forecasted variable.
In such a changing world it is difficult to see what variables it would be “rational” for the investors to grant more weight.32 There exists some evidence for the idea that forecasters do not concur on a single stabilizing sort of expectations model as nicely as the estimates of regressive expectations described above would suggest.
This result depends critically on knowledge of the future long-run equilibrium; knowledge entailed by the rational expectations hypothesis, yet knowledge forbidden to mortals facing an uncertain future.
Turning now to economic models of expectation formation, it is useful to see whether a model of expectations generation distinct from the rational model can usefully characterize the forecasters.
In the context of a nonstochastic fix-price model, the particular sense in which the term rational expectations has come to be understood has extremely strong implications: all individuals have perfect foresight not only concerning the level of wages and prices that will prevail in the future and the constraints that will be binding, but also concerning the magnitude of those constraints.
This suggestion has implications for empirical work in other areas, in that rendering rational expectations operational by assuming perfect foresight may introduce far greater errors in variables than occur if the information available is assumed limited.
In such neighbourhoods, the assumption of parameter constancy and the fiction that agents have precise knowledge of parameters on which to base their rational forecasts have to be worked very hard for sense to be made of the rational expectations solution.
In “good” cases, the rational-expectations forecast will appear as the necessary outcome of agents’ mental activities which have clear and appealing economic grounds; the rational-expectations outcome will then be explained and not merely assumed.
INTRODUCTION The rational expectations hypothesis asserts that economic agents anticipate the future according to the true probability distribution of future events.
The powerful ‘rational expectations’ argument that forecasting rules which imply indefinitely repeated errors will be rejected no longer suffices to tie down long run behaviour.
This approach led to the question of whether such forecasts were indeed rational; research on this topic was also directed toward testing the rational expectations assumption.
“Rational expectations” represent optimal expectations only when a set of restrictive assumptions holds.1 A difficulty with the relevance of the REH is whether it constitutes optimal forecasting behavior when these assumptions do not hold.
RATIONALITY, ECONOMIC THEORY, AND FORECASTING METHOD An interesting but hitherto unexplored issue is whether differences in forecast rationality can be attributed to differences in the way forecasts are compiled.
Empirical tests of the rational expectations hypothesis using individual forecasts may be biased toward rejecting rationality because they fail to take into account the interplay among forecasters.
The Canadian Journal of Economics / Revue canadienne d’Economique
Jeremy R. Rudin
0.837
Finally, we examine whether deviations from rationality are associated with the adherence of forecasters to particular economic theories or forecasting methods.
The cluster gathers 607 sentences from our corpus. It represents 0.37% of all the sentences selected over the whole period.
The community exists from 1980 to 1989.
The most recurring authors are Charles L. Schultze (18 sentences), George A. Akerlof (18 sentences), Janet L. Yellen (16 sentences), Kent P. Kimbrough (10 sentences), Robert E. Hall (10 sentences), Robert J. Gordon (10 sentences), David K. H. Begg (8 sentences), Allan Drazen (7 sentences), Clive Bull (7 sentences), John B. Taylor (7 sentences).
The most recurring journals are The American Economic Review (75 sentences), Journal of Post Keynesian Economics (46 sentences), The Quarterly Journal of Economics (42 sentences), Journal of Political Economy (41 sentences), The Economic Journal (39 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
rational_expectations
0.0088680
expectations
0.0039953
real_wage
0.0025646
unemployment
0.0022554
natural_rate
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wage
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labor_markets
0.0015462
model
0.0015406
labor_market
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demand_schedules
0.0012291
labour_market
0.0011345
expectations_model
0.0010788
models
0.0010554
stickiness
0.0010263
workers
0.0010252
involuntary
0.0009822
macroeconomic
0.0009822
market_clearing
0.0009806
real_rate
0.0009454
labor_supply
0.0009121
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
The conclusion reached from many models using the rational expectations approach is that instability in output and employment arises from lags in the ability of rational agents to incorporate new information into their predictive models.
It appears that an unemployment equilibrium is consistent with rationality in some sense, though the mixed results make any strong statement questionable.
The results do not provide any direct evidence on the appropriateness of the assumption of rational expectation formation; in fact, they are consistent with a rational expectations model with sticky wages or prices.
We assume that economic agents form rational expectations of unobserved variables; consequently, systematic policy will have no impact on real variables unless there exists either an informational asymmetry between the authority and private agents or some form of price or wage rigidity.
Now the approach in question does indeed imply that output and employment can be influenced by policy only to the extent that it causes prices to vary in a way that agents in the private sector do not forsee, while the rational expectations hypothesis tells us that if such effects were systematic, the private sector would discover the fact, adapt to it, and thereby render policy ineffective.
In your book Profitability and Unemployment, you analyze the relevance of the assumption of rational expectations and you express some critical views on this approach.
Alberto Holly , Peter C. B. Phillips, Edmond Malinvaud
0.752
Though the notion of a locally rational conjectural equilibrium appears theoretically interesting, attempts in specific models to demonstrate rationality of behavior leading to an unemployment equilibrium have been disappointing.
From macroeconomic research completed during the last ten years, it now seems clear that a rational expectations approach to policy evaluation should not be confined to market-clearing situations where all prices and wages adjust instantaneously, nullifying the real effects of anticipated policy and leaving only unanticipated policy to matter.
As a result there is no permanent inflation-employment trade-off .3 A few words are in order on how the concept of rational expectations is being used in the paper.
1 Since the macroeconomic effects of their own wage and price decisions do not enter into economic agents’ objective functions, the Akerlof-Yellen conclusions about the small size of losses from “near-rational” behavior would apply to the nonauction markets I am here describing.
The theoretical foundations of this view are the two pillars of Muth-rational expectations and the ‘Phelps- Friedman-Lucas-instantaneous-natural rate or only-wage-and-price-surprises- matter’ supply function.
Given his simple assumptions, he analyses at some length the Rational Expectations equilibrium problem and the time series behaviour of wages, prices, employment and output.
The question of the existence of a labor market equilibrium such that workers have rational expectations which fulfill A3 is discussed briefly at the end of this section.
Among the 50 closest sentences to the cluster’s centroid, 78% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It appears that an unemployment equilibrium is consistent with rationality in some sense, though the mixed results make any strong statement questionable.
As a result there is no permanent inflation-employment trade-off .3 A few words are in order on how the concept of rational expectations is being used in the paper.
The question of the existence of a labor market equilibrium such that workers have rational expectations which fulfill A3 is discussed briefly at the end of this section.
Now the approach in question does indeed imply that output and employment can be influenced by policy only to the extent that it causes prices to vary in a way that agents in the private sector do not forsee, while the rational expectations hypothesis tells us that if such effects were systematic, the private sector would discover the fact, adapt to it, and thereby render policy ineffective.
The rational expectations critique has shown that if wages are set rationally-even if they lack the flexibility to continually clear the labor market-then, in this model, no consistent policy regime can be devised to ameliorate cyclical fluctuations.
As many economists have recognized, however, this conclusion rests not only on the assumption of rational expectations, but also on the belief that wages and prices are set at market-clearing levels, i.e., at levels that equate notional supply and demand at least in an anticipatory sense.4 In contrast, in many Keynesian models wages and prices include an important disequilibrium element, at least in the short run.
Though the notion of a locally rational conjectural equilibrium appears theoretically interesting, attempts in specific models to demonstrate rationality of behavior leading to an unemployment equilibrium have been disappointing.
Implications for the Rational Expectations Model of the Economy The findings presented above about the flexibility of wages and prices relative to aggregate demand are particularly relevant for the implications of rational expectations and related theories that emphasize market-clearing price and wage behavior combined with misperceptions and information lags as an explanation of the response of inflation and output to changes in aggregate demand.
Charles L. Schultze, William Fellner , Robert J. Gordon
0.807
Also, work on indeterminacy in rational-expectations models may direct the profession’s attention away from wage-stickiness and back towards the intertemporal co-ordination problems that Keynes saw as lying at the root of unemployment.
In your book Profitability and Unemployment, you analyze the relevance of the assumption of rational expectations and you express some critical views on this approach.
Alberto Holly , Peter C. B. Phillips, Edmond Malinvaud
0.804
If inertia in the economy is due to multiperiod nominal wage contracts, as was assumed in the model, then rational agents must form expectations of inflation more than one period ahead in order to bargain intelligently when their contracts are renegotiated.
At the same time, the requirement that expectations be rational places more restrictions on the types of equilibria consistent with a given wage-price vector than did the exogenous constraint expectations considered in Section IV: for example, many points such as A” are consistent with Keynesian unemployment in the current period if expectations are allowed to be arbitrarily pessimistic, but not in general if they are required to be rational.
Models with rational expectations that include contracts and staggered wage setting can produce more realistic output and employment paths at the cost of rejecting the market assumptions of the new classical school.
George L. Perry , William Fellner , Robert J. Gordon , James Duesenberry, Robert E. Hall , Christopher Sims , William Nordhaus , Robin Marris , Thomas Juster , John Shoven , Benjamin Friedman, James Tobin
0.801
We assume that economic agents form rational expectations of unobserved variables; consequently, systematic policy will have no impact on real variables unless there exists either an informational asymmetry between the authority and private agents or some form of price or wage rigidity.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It appears that an unemployment equilibrium is consistent with rationality in some sense, though the mixed results make any strong statement questionable.
As a result there is no permanent inflation-employment trade-off .3 A few words are in order on how the concept of rational expectations is being used in the paper.
The question of the existence of a labor market equilibrium such that workers have rational expectations which fulfill A3 is discussed briefly at the end of this section.
Now the approach in question does indeed imply that output and employment can be influenced by policy only to the extent that it causes prices to vary in a way that agents in the private sector do not forsee, while the rational expectations hypothesis tells us that if such effects were systematic, the private sector would discover the fact, adapt to it, and thereby render policy ineffective.
In these papers the real wage was assumed to be somehow exogenously determined, and employment was determined by either a dynamic supply function or a dynamic demand function for labor, with no explanation of why either the supply function or the demand function should prevail.
The rational expectations critique has shown that if wages are set rationally-even if they lack the flexibility to continually clear the labor market-then, in this model, no consistent policy regime can be devised to ameliorate cyclical fluctuations.
As many economists have recognized, however, this conclusion rests not only on the assumption of rational expectations, but also on the belief that wages and prices are set at market-clearing levels, i.e., at levels that equate notional supply and demand at least in an anticipatory sense.4 In contrast, in many Keynesian models wages and prices include an important disequilibrium element, at least in the short run.
Though the notion of a locally rational conjectural equilibrium appears theoretically interesting, attempts in specific models to demonstrate rationality of behavior leading to an unemployment equilibrium have been disappointing.
Implications for the Rational Expectations Model of the Economy The findings presented above about the flexibility of wages and prices relative to aggregate demand are particularly relevant for the implications of rational expectations and related theories that emphasize market-clearing price and wage behavior combined with misperceptions and information lags as an explanation of the response of inflation and output to changes in aggregate demand.
Charles L. Schultze, William Fellner , Robert J. Gordon
0.807
Also, work on indeterminacy in rational-expectations models may direct the profession’s attention away from wage-stickiness and back towards the intertemporal co-ordination problems that Keynes saw as lying at the root of unemployment.
In your book Profitability and Unemployment, you analyze the relevance of the assumption of rational expectations and you express some critical views on this approach.
Alberto Holly , Peter C. B. Phillips, Edmond Malinvaud
0.804
If inertia in the economy is due to multiperiod nominal wage contracts, as was assumed in the model, then rational agents must form expectations of inflation more than one period ahead in order to bargain intelligently when their contracts are renegotiated.
The cluster gathers 5272 sentences from our corpus. It represents 3.26% of all the sentences selected over the whole period.
The community exists from 1980 to 2019.
The most recurring authors are David Dequech (70 sentences), Matthew Rabin (41 sentences), Carlo Zappia (40 sentences), Sheila C. Dow (40 sentences), W. Kip Viscusi (39 sentences), Glenn W. Harrison (38 sentences), Mark J. Machina (37 sentences), Thomas J. Sargent (34 sentences), Tony Lawson (32 sentences), Jochen Runde (31 sentences).
The most recurring journals are The American Economic Review (427 sentences), Journal of Post Keynesian Economics (395 sentences), Economic Theory (329 sentences), The Economic Journal (260 sentences), Econometrica (247 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
risk_aversion
0.0048748
aversion
0.0028989
uncertainty
0.0025998
averse
0.0023203
risk_averse
0.0023079
irreversibility_uncertainty
0.0022728
risk
0.0022408
fundamental_uncertainty
0.0018060
expected_utility
0.0017118
risk_preferences
0.0015590
uncertainty_aversion
0.0014896
risk_attitudes
0.0011367
risky
0.0010664
irreversibility
0.0009549
moral_hazard
0.0009443
probabilities
0.0008983
ambiguity
0.0008742
ambiguity_aversion
0.0007844
risk_taking
0.0007830
model
0.0007586
Top TF-IDF terms describing the community for each time window
Top terms 1980-1989
Token
TF-IDF
uncertainty
0.0036485
risk_aversion
0.0028601
risk_averse
0.0018142
aversion
0.0017358
price_uncertainty
0.0015398
averse
0.0014239
stochastic
0.0013393
keynes
0.0013067
rational_expectations
0.0012787
risk
0.0012630
expected_utility
0.0009028
expectations
0.0008934
uncertain_world
0.0008542
model
0.0008498
uncertain
0.0008158
Top terms 1990-1999
Token
TF-IDF
irreversibility_uncertainty
0.0036231
uncertainty
0.0033344
risk_aversion
0.0031764
aversion
0.0023257
irreversibility
0.0021465
fundamental_uncertainty
0.0017112
risk_averse
0.0016916
risk
0.0015228
averse
0.0014921
endogenous_uncertainty
0.0013678
expected_utility
0.0013402
extrinsic_uncertainty
0.0011432
probabilities
0.0010765
rational_expectations
0.0010627
moral_hazard
0.0010469
Top terms 2000-2009
Token
TF-IDF
risk_aversion
0.0061849
fundamental_uncertainty
0.0048385
aversion
0.0047529
risk_averse
0.0030601
averse
0.0029515
uncertainty
0.0028131
risk
0.0026549
risk_preferences
0.0022109
risk_attitudes
0.0020930
expected_utility
0.0019649
uncertainty_aversion
0.0018429
irreversibility_uncertainty
0.0016893
bounded_rationality
0.0014444
bounded
0.0014214
risky
0.0013861
Top terms 2010-2019
Token
TF-IDF
risk_aversion
0.0070771
aversion
0.0058603
risk_averse
0.0033772
averse
0.0032835
risk
0.0031005
risk_preferences
0.0030214
risk_attitudes
0.0026459
uncertainty_aversion
0.0025627
uncertainty
0.0022662
ambiguity_aversion
0.0022528
irreversibility_uncertainty
0.0021356
risky
0.0019274
risk_taking
0.0018446
expected_utility
0.0018379
ambiguity
0.0018244
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Whether or not one agrees that economic models ought always to assume rational behavior under uncertainty, i.e.
Deciding How to Decide: Truly Bounded Rationality The considerations sketched in the last two sections make the typical problem of rational decision-making under uncertainty appear much more complicated than the simple examples one encounters in textbooks on microeconomic theory and management science.
MICHAEL J. COOPER , HUSEYIN GULEN , ALEXEI V. OVTCHINNIKOV
0.786
Conclusion Behavioural economics has challenged strong assumptions about the rationality of individuals that underpin many models of economic decision-making, especially under conditions of uncertainty.
Here it is maintained, in distinction from the first type of responses to the problem of uncertainty, that the rational actor model must be rejected more completely than these approaches suggest and, in distinction from the latter approaches, that the under.
Hence, there is no reason why equilibrium, or even a tendency toward it, should be expected.8 Recently, the neoclassical response to the reality of uncertainty has been the development of the theory of “rational expectations.”
We seek to answer the question: How much irrationality must be permitted before speculation and agreements to disagree emerge in equilibrium?7 There are a number of errors that are typically made by decision-makers that suggest we go beyond the orthodox Bayesian paradigm.
By replacing rational expectations with rational belief they extend the uncertainty allowed and argue that in equilibrium the demanded premium would be higher than could be accounted for by models in which the only perceived uncertainty is the exogenous uncertainty of future dividends.
Uncertainty Rational expectations and Keynesian uncertainty: a critique MALCOLM RUTHERFORD It has long been recognized that an individual’s expectations will affect his economic behavior.
Since both bounded rationality and “fundamental” uncertainty imply, at least in certain areas of decision-making, agents are unable to make optimizing choices whose payoffs are expected in the future, it is easy to conflate bounded rationality with an analysis of decision-making under uncertainty.
Hence, there is no reason why equilibrium, or even a tendency toward it, should be expected.8 Recently, the neoclassical response to the reality of uncertainty has been the development of the theory of “rational expectations.”
Uncertainty Rational expectations and Keynesian uncertainty: a critique MALCOLM RUTHERFORD It has long been recognized that an individual’s expectations will affect his economic behavior.
But like Keynesianism’s strategy of freely postulating price rigidities, rational expectations’ coherent tracing out of the implications of dynamic optimization under uncertainty is both its central strength and its main weakness.
Laurence Ball , N. Gregory Mankiw , David Romer , George A. Akerlof , Andrew Rose , Janet Yellen , Christopher A. Sims
0.755
This sort of control model may be seen as a rational response by economic agents under uncertainty, although its backward-looking character is possibly subject to criticism.
Laurence Ball , N. Gregory Mankiw , David Romer , George A. Akerlof , Andrew Rose , Janet Yellen , Christopher A. Sims
0.754
Introduction In the past decade, significant advances in economic theory have modelled rational decisionmaking and market equilibrium under conditions of uncertainty.
The difficulties involved in defining rational behaviour under risk and uncertainty have been analysed in some depth and detail by economists in the literature on decision theory and cannot be reviewed here52.
Deciding How to Decide: Truly Bounded Rationality The considerations sketched in the last two sections make the typical problem of rational decision-making under uncertainty appear much more complicated than the simple examples one encounters in textbooks on microeconomic theory and management science.
We seek to answer the question: How much irrationality must be permitted before speculation and agreements to disagree emerge in equilibrium?7 There are a number of errors that are typically made by decision-makers that suggest we go beyond the orthodox Bayesian paradigm.
By replacing rational expectations with rational belief they extend the uncertainty allowed and argue that in equilibrium the demanded premium would be higher than could be accounted for by models in which the only perceived uncertainty is the exogenous uncertainty of future dividends.
Contributions by Robison and Barry; Robison and Lev; and Robison, Barry, and Burghardt have considered several realistic institutions that may be important in explaining decisions under uncertainty by real-world economic agents.
Furthermore, the assumption of rationality implies that problems of information and uncertainty are not so severe as to undermine the assumption that the actions of agents result from, or can be treated as if they result from, informed rational choice.
Conclusion Behavioural economics has challenged strong assumptions about the rationality of individuals that underpin many models of economic decision-making, especially under conditions of uncertainty.
Jahrbücher für Nationalökonomie und Statistik / Journal of Economics and Statistics
Jan Schnellenbach
0.779
Here it is maintained, in distinction from the first type of responses to the problem of uncertainty, that the rational actor model must be rejected more completely than these approaches suggest and, in distinction from the latter approaches, that the under.
Since both bounded rationality and “fundamental” uncertainty imply, at least in certain areas of decision-making, agents are unable to make optimizing choices whose payoffs are expected in the future, it is easy to conflate bounded rationality with an analysis of decision-making under uncertainty.
In the fourth section, the paper incorporates this type of uncertainty into a discussion of rationality and institutions, so that bounded rationality, institutions, and fundamental uncertainty can be brought together.
Several important topics have been discussed in greater depth elsewhere.9 My focus is on the psychology of imperfect rationality, not psychological determinants of rational risk aversion or time preference.
Cahiers d’économie politique / Papers in Political Economy
Dorian Jullien
0.765
Arising in cases of conflict between incommensurable or opposite heterogeneous reasons within a single judgment of probability, rational dilemmas concern not only Keynes’ treatment of probability as the hypothesis upon which it is reasonable to act and, more generally, a guide for life, but enter the realm of economics as well.
However, in the field of choice among risky situations, actual behaviour seems to differ from “rational behaviour” more than happens in the usual field of riskless situations, and this is true for various reasons.
Somehow unexpectedly, seut has become the positive description of how the rational agents populating neoclassical economic models are assumed to behave when facing decision under either parametric or strategic uncertainty.1 Such an unexpected development might happen, among other rea sons, only after the harsh critiques raised against seut as a tool for stat isticians had been forgotten - or merely set aside.
We will try to answer the question to what extent people measure up to the normative standard of fully rational and cognitively unconstrained optimization under risk neutrality for different combinations of evidence.
Ferdinand M. Vieider, Mathieu Lefebvre , Ranoua Bouchouicha , Thorsten Chmura , Rustamdjan Hakimov , Michal Krawczyk , Peter Martinsson
0.716
Closest sentences from the cluster’s centroid
Among the 200 closest sentences to the cluster’s centroid, 14% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
The difficulties involved in defining rational behaviour under risk and uncertainty have been analysed in some depth and detail by economists in the literature on decision theory and cannot be reviewed here52.
Rational choice theories under certainty and under risk have been established as descriptive models for the decisions of consumers, producers, voters, politicians, etc.
SAMUEL J. PORTELLI Probabilistic risk, neuroeconomic ambiguity, and Keynesian uncertainty Abstract: The relative importance of agent confidence and rational expectations has fluctuated in the course of economic thought , and remains an important issue in the discipline today.
Traditional decision analysis, now well incorporated into economic theory, would tell us that for a rational, self-interested individual, “a risk is a risk is a risk.”
Since both bounded rationality and “fundamental” uncertainty imply, at least in certain areas of decision-making, agents are unable to make optimizing choices whose payoffs are expected in the future, it is easy to conflate bounded rationality with an analysis of decision-making under uncertainty.
T. Parker Ballinger, Michael G. Palumbo , Nathaniel T. Wilcox
0.813
RISK AND UNCERTAINTY: FROM KEYNES AND KNIGHT TO RATIONAL EXPECTATIONS The conceptual framework developed in this paper is rooted in seminal work from the 1920s, when two economists - Frank Knight and John Maynard Keynes - introduced the idea that decision-making by economic agents in situations of risk and uncertainty might differ.
A second line of research in psychology, and more recently in economics, has explored the rationality of individual choices under uncertainty and its implications.2 These analyses have primarily relied on experimental evidence and some survey data to assess the reliability of individuals’ formations of probabilistic perceptions and the consistency of their behavior under uncertainty.
Springer-Verlag 1996 Symposium Rational beliefs and endogenous uncertainty* Mordecai Kurz Department of Economics, Serra Street at Galvez, Stanford University, Stanford, CA 94305-6072, USA 1 On the diversity of probability beliefs Sharp differences of opinions and probability beliefs among economic agents are very commonly observed phenomena.
Section 5 discusses how to reconcile the implied dynamic inconsistency of human choice with policy suggestions to regard perfect information on risk magnitude as a sufficient condition for rational choice.
Economic Perspectives-Volume 1, Number ISummer 1987-Pages 121-154 Choice Under Uncertainty: Problems Solved and Unsolved Mark J. Machina F ifteen years ago, the theory of choice under uncertainty could be considered one of the “success stories” of economic analysis: it rested on solid axiomatic foundations, it had seen important breakthroughs in the analytics of risk, risk aversion and their applications to economic issues, and it stood ready to provide the theoretical underpinnings for the newly emerging “information revolution” in economics.’
To investigate the effects of uncertainty on economic choice, some earlier writers compared the optimal choice of a risk averse decision maker with its certainty equivalent.
Zeitschrift für Nationalökonomie / Journal of Economics
Yuzo Honda
0.850
If, as suggested by the certainty ef fect, the mere presence of uncertainty causes individuals to discount their valuation of a prospect, then their valuation of a gamble will depend on whether it is evaluated rela tive to a certain or uncertain alternative.
Introduction The distinction between risk and uncertainty is generally interpreted as having to do with whether or not agents can be assumed to act as if We have received helpful comments from H. E. Frech, Christian Gilles, and George Stigler.
Contributions by Robison and Barry; Robison and Lev; and Robison, Barry, and Burghardt have considered several realistic institutions that may be important in explaining decisions under uncertainty by real-world economic agents.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1980-1989
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Economic Perspectives-Volume 1, Number ISummer 1987-Pages 121-154 Choice Under Uncertainty: Problems Solved and Unsolved Mark J. Machina F ifteen years ago, the theory of choice under uncertainty could be considered one of the “success stories” of economic analysis: it rested on solid axiomatic foundations, it had seen important breakthroughs in the analytics of risk, risk aversion and their applications to economic issues, and it stood ready to provide the theoretical underpinnings for the newly emerging “information revolution” in economics.’
To investigate the effects of uncertainty on economic choice, some earlier writers compared the optimal choice of a risk averse decision maker with its certainty equivalent.
Introduction The distinction between risk and uncertainty is generally interpreted as having to do with whether or not agents can be assumed to act as if We have received helpful comments from H. E. Frech, Christian Gilles, and George Stigler.
Zeitschrift für Nationalökonomie / Journal of Economics
Rolf Kotz , Klaus Spremann
0.834
The difficulties involved in defining rational behaviour under risk and uncertainty have been analysed in some depth and detail by economists in the literature on decision theory and cannot be reviewed here52.
Under conditions of uncertainty economic agents modify their behavior only when the prospective attenuated gains outweigh the prospective attenuated losses.
Contributions by Robison and Barry; Robison and Lev; and Robison, Barry, and Burghardt have considered several realistic institutions that may be important in explaining decisions under uncertainty by real-world economic agents.
Thus, in contrast to Lucas’s view of the limits of economic reasoning, this paper suggests that economics can, and must, deal with behaviour under more general forms of uncertainty.
If, as suggested by the certainty ef fect, the mere presence of uncertainty causes individuals to discount their valuation of a prospect, then their valuation of a gamble will depend on whether it is evaluated rela tive to a certain or uncertain alternative.
The crux of the matter lies in the nature and significance of the phenomenon of uncertainty, that is to say, in situations in which people are unable to assign sharp numerical probabilities to the consequences of their actions.1 The existence of such situations is significant for economic sociologists because the standard economic model of people as expected utility-maximizers is inapplicable to those large swathes of economic life characterized by uncertainty.
As a result of this growing concern with cognitive matters, the issue of uncertainty itself has been the subject of interesting new developments in economics, some of which will inform the discussion below.
Yet in economic theory it has long been recognized both in the mainstream and in behavioral approaches that people’s attitudes to decision making when faced with risk are a good deal more complex than the simple idea of universal risk aversion suggests.
The cluster gathers 8014 sentences from our corpus. It represents 4.95% of all the sentences selected over the whole period.
The community exists from 1980 to 2019.
The most recurring authors are Andrei Shleifer (97 sentences), David Hirshleifer (90 sentences), Lawrence H. Summers (88 sentences), John Y. Campbell (80 sentences), Jeremy C. Stein (63 sentences), Stephen A. Ross (61 sentences), Jiang Wang (57 sentences), Robert J. Shiller (57 sentences), Richard H. Thaler (52 sentences), Leonid Kogan (48 sentences).
The most recurring journals are The Journal of Finance (1586 sentences), The American Economic Review (687 sentences), Economic Theory (352 sentences), Econometrica (324 sentences), The Economic Journal (281 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
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investors
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traders
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asset_prices
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stock_prices
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arbitrage
0.0010448
investor
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beliefs
0.0009941
volatility
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Top TF-IDF terms describing the community for each time window
Top terms 1980-1989
Token
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stock_prices
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efficient_markets
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asset_prices
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investors
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market_efficiency
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market_rationality
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arbitrage
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Top terms 1990-1999
Token
TF-IDF
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traders
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rational_expectations
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Top terms 2000-2009
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Top terms 2010-2019
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Theoretical I IA Macrostochastic The statistical expectations of an RE principles rationality model are equivalent to the psychological expectations of rational market participants which dominate the market.
I also add to the behavioral/ rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon.
As noted in the introduction, a possible objection to models with imperfectly rational traders is that wealth may shift from foolish to rational traders until price setting is dominated by rational traders.
Following this distinction, the rational expectations equilibrium is treated in this paper as a “benchmark” for the analysis of market behavior when the market is not in the rational expectations equilibrium.”
In the development below, we will study a variant of this market model and examine its behavior under Rational Expectations as well as under Rational Beliefs.
Although I must confess to a traditional view on the central role of rational behavior in finance, I also believe that financial models based on frictionless markets and complete information are often inadequate to capture the complexity of rationality in action.
These results are consistent with the theoretical models which I have been describing and can be taken as support for the application of the rational expectations hypothesis to financial markets.
Since, however, so many formal investigations have been published in the past which establish market failure due to rational behavior, we should now follow any conceivable route which promises the possibility of predicting, based on rational behavior, some more “rational” outcome.
The model describes market participants characterised by a boundedly rational behavior, and more im portantly by an idiosyncratic level of rationality.
Based on a reasonable interpretation of Thaler’s Groundhog Day argument, one could conclude that the collective rationality of markets is negatively related to the individual rationality of market decision makers.
There is a growing number of theoretical contributions that analyze the performance of markets characterized by a mixture of rational and near-rational decision makers.
If there is little confidence in the likely accuracy of rational expectations in a particular market it may well be that non-rational expectations will be preferred, even if the possibility of systematic errors exists, as any such systematic errors may be ajudged less damaging than the error contained in the rational expectations.
International Journal of Transport Economics / Rivista internazionale di economia dei trasporti
G. WRIGHT
0.776
The fact that the rationality of expectations goes together with an optimistic view of the performance of the market is witnessed by examples outside the strict field of the theory of resource allocation.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Roger Guesnerie
0.776
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1980-1989
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Theoretical I IA Macrostochastic The statistical expectations of an RE principles rationality model are equivalent to the psychological expectations of rational market participants which dominate the market.
Following this distinction, the rational expectations equilibrium is treated in this paper as a “benchmark” for the analysis of market behavior when the market is not in the rational expectations equilibrium.”
Although I must confess to a traditional view on the central role of rational behavior in finance, I also believe that financial models based on frictionless markets and complete information are often inadequate to capture the complexity of rationality in action.
These results are consistent with the theoretical models which I have been describing and can be taken as support for the application of the rational expectations hypothesis to financial markets.
Eventually, as a common basis for “rational expectations” emerges, the performance of markets improves, but never reaches that of the newly designed mechanisms.
Jeffrey S. Banks, John O. Ledyard , David P. Porter
0.772
The first of the discussion papers is Tobin’s, which not only includes thoughtful comments on market clearing, informational imperfections, and other characteristics of rational expectations models in general, but also specific critiques of each of the four principal papers in the volume.
INTRODUCTION The assumption that economic agents have rational expectations is commonplace in studies of macroeconomic policy and asset market behavior.
Since that time, alternative models with rational expectations and market clearing have been proposed; curiously, they retain their popularity, despite the numerous empirical rejections of such models.
George A. Akerlof, Andrew K. Rose , Janet L. Yellen , Laurence Ball , Robert E. Hall
0.769
To this extent, therefore, even in a market with active trading, substantial infor mation, thoughtful and informed traders and an active forward market, it might be suggested that the rational expectations hypothesis is not always applicable.
As noted in the introduction, a possible objection to models with imperfectly rational traders is that wealth may shift from foolish to rational traders until price setting is dominated by rational traders.
In the development below, we will study a variant of this market model and examine its behavior under Rational Expectations as well as under Rational Beliefs.
Daniel Kahneman , Jack L. Knetsch , Richard H. Thaler
0.791
Since, however, so many formal investigations have been published in the past which establish market failure due to rational behavior, we should now follow any conceivable route which promises the possibility of predicting, based on rational behavior, some more “rational” outcome.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Urs Schweizer
0.783
There is a growing number of theoretical contributions that analyze the performance of markets characterized by a mixture of rational and near-rational decision makers.
If there is little confidence in the likely accuracy of rational expectations in a particular market it may well be that non-rational expectations will be preferred, even if the possibility of systematic errors exists, as any such systematic errors may be ajudged less damaging than the error contained in the rational expectations.
International Journal of Transport Economics / Rivista internazionale di economia dei trasporti
G. WRIGHT
0.776
If agents make weak-form rational expectations the market price dynamics diverge from the fundamental price, although it is still rational in a weak sense.
Traders in financial markets then appear to behave in a manner consistent with the rational expectations thesi Before concluding however that in spite of the difficulties agents will aspire to holding rational expectations the general validity of the rational expectations thesis must be assessed.
International Journal of Transport Economics / Rivista internazionale di economia dei trasporti
G. WRIGHT
0.775
The mere presence of a few rational traders in a market does not guarantee that prices are efficient; rational traders may be no more willing or able to act on their beliefs than biased traders.
The Rationality Struggle: Illustrations from Financial Markets By JAYENDU PATEL, RICHARD ZECKHAUSER, AND DARRYLL HENDRICKS * For most economists it is an article of faith that financial markets reach rational aggregate outcomes, despite the irrational behavior of some participants, since sophisticated players stand ready to capitalize on the mistakes of the naive.
Jayendu Patel , Richard Zeckhauser, Darryll Hendricks
0.767
Top sentences 2000-2009
Sentence
Title
Year
Journal
Authors
Centroid Similarity
I also add to the behavioral/ rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon.
The model describes market participants characterised by a boundedly rational behavior, and more im portantly by an idiosyncratic level of rationality.
The fact that the rationality of expectations goes together with an optimistic view of the performance of the market is witnessed by examples outside the strict field of the theory of resource allocation.
Failure of prices to equal discounted payoffs is taken in this passage to be equivalent to irrationality, so there is no allowance for the possibility that values could exceed discounted future returns when agents are fully rational.2 Bubbles as manifestations of irrationality are considered more fully in section 6 below.
We are considering the possibility that some investors are irrational, so we must distinguish between the subjective expectations of irrational investors and the objective expectations of rational investors.
PREDICTIONS Under the assumption of common knowledge of rationality and selfishness of all market participants, the predictions for each of our four treatments are straightforward.
These empirical results are consistent with standard rational asset pricing theory,23 but they are also consistent with explanations based on imperfect rationality.
Based on a reasonable interpretation of Thaler’s Groundhog Day argument, one could conclude that the collective rationality of markets is negatively related to the individual rationality of market decision makers.
In particular, one of the equilibrium market hypothesis-based streams of literature has introduced various types of irrational or partially rational agents whose interaction in the marketplace causes the realization of prices that are different from the fundamental values and may even lead to the occurrence of destabilizing dynamics.
We then make the key observation that rationality implies that beliefs must fluctuate and thus have inherent dynamics which induces a crucial component of market volatility that we call “Endogenous Uncertainty.”
The paper makes the standard assumption that all agents, including the outside investors, are rational and sophis ticated and claims that these are weak assumptions.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Eric van Damme
0.751
First, the introduction of near-rational behavior microfounds the amount of noise in asset prices in a way that is consistent with the rational paradigm and lends itself to normative analysis.
Concluding Remarks Theories involving departures from fully-rational behaviour have long played a role in efforts to account for the behaviour of asset prices.
Consistent with the thesis of Greenwood and Shleifer, it is implausible, given this evidence, that the surveyed investors have rational expectations.19 This fact is unsettling for proponents of rational-expectations representative-agent models.
However, another interpretation of the evidence is that agents are fully rational but either do not find it in their interest to reevaluate exchange rate expectations on a continuous basis when they make infrequent portfolio decisions or rationally condition expectations on a limited information set for the various reasons discussed in Section IIB.
I also add to the behavioral/ rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon.
As noted in the introduction, a possible objection to models with imperfectly rational traders is that wealth may shift from foolish to rational traders until price setting is dominated by rational traders.
The mere presence of a few rational traders in a market does not guarantee that prices are efficient; rational traders may be no more willing or able to act on their beliefs than biased traders.
Heterogeneity in behavior can be an important factor in asset pricing, and it may not require there to be many rational traders for prices to reflect no judgment errors.
We are considering the possibility that some investors are irrational, so we must distinguish between the subjective expectations of irrational investors and the objective expectations of rational investors.
Recent theoretical work on asset markets, based on the rational expectations hypothesis, has argued that they may have an additional informational role.
One key element in the theories coming out of this research is that people do not possess the full set of information assumed in the standard asset price model with rational expectations.
Participants in the stock market have rational expectations: they understand managers’ incentives to work and to manipulate, but they do not know the realized value of cm, and thus of M, and cannot observe V’.
In the rest of this section, we consider the case in which investors have biased beliefs, but characterize expected returns from the perspective of a fully rational observer.
I also add to the behavioral/ rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon.
As noted in the introduction, a possible objection to models with imperfectly rational traders is that wealth may shift from foolish to rational traders until price setting is dominated by rational traders.
The mere presence of a few rational traders in a market does not guarantee that prices are efficient; rational traders may be no more willing or able to act on their beliefs than biased traders.
Heterogeneity in behavior can be an important factor in asset pricing, and it may not require there to be many rational traders for prices to reflect no judgment errors.
We are considering the possibility that some investors are irrational, so we must distinguish between the subjective expectations of irrational investors and the objective expectations of rational investors.
Recent theoretical work on asset markets, based on the rational expectations hypothesis, has argued that they may have an additional informational role.
One key element in the theories coming out of this research is that people do not possess the full set of information assumed in the standard asset price model with rational expectations.
Participants in the stock market have rational expectations: they understand managers’ incentives to work and to manipulate, but they do not know the realized value of cm, and thus of M, and cannot observe V’.
Recent theoretical work on asset markets, based on the rational expectations hypothesis, has argued that they may have an additional informational role.
To this extent, therefore, even in a market with active trading, substantial infor mation, thoughtful and informed traders and an active forward market, it might be suggested that the rational expectations hypothesis is not always applicable.
Although I must confess to a traditional view on the central role of rational behavior in finance, I also believe that financial models based on frictionless markets and complete information are often inadequate to capture the complexity of rationality in action.
This treatment was motivated by the conjecture that if the stock market was dominated only by professional traders, one might observe intrinsic value asset prices, but that the presence of uninformed novices who lose money, leave the market, and are replaced by new novices, prevents such equilibria from occurring.
I want to discuss four of those zones of weakness that have attracted unfriendly fire: the fix-price assumption, the treatment of expectations, the stock-flow problem, and-in order to meet Leijonhufvud head on-the ‘informational’ presumptions.
Much of the recent theoretical work on asset markets has been concerned with investigating the circumstances under which a rational expectations equilibrium exists, and is informationally efficient.
Conclusion The central idea of efficient capital market theory is that securities prices are determined by the interaction of self-interested rational agents.
As noted in the introduction, a possible objection to models with imperfectly rational traders is that wealth may shift from foolish to rational traders until price setting is dominated by rational traders.
Kent Daniel , David Hirshleifer , Avanidhar Subrahmanyam
0.863
The mere presence of a few rational traders in a market does not guarantee that prices are efficient; rational traders may be no more willing or able to act on their beliefs than biased traders.
In the development below, we will study a variant of this market model and examine its behavior under Rational Expectations as well as under Rational Beliefs.
In financial markets, if we consider expected returns as revenues and risks borne as total costs, the same result is obtained: irrational traders perform better than rational investors.
Traders in financial markets then appear to behave in a manner consistent with the rational expectations thesi Before concluding however that in spite of the difficulties agents will aspire to holding rational expectations the general validity of the rational expectations thesis must be assessed.
International Journal of Transport Economics / Rivista internazionale di economia dei trasporti
G. WRIGHT
0.811
Top sentences 2000-2009
Sentence
Title
Year
Journal
Authors
Centroid Similarity
I also add to the behavioral/ rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon.
Heterogeneity in behavior can be an important factor in asset pricing, and it may not require there to be many rational traders for prices to reflect no judgment errors.
We are considering the possibility that some investors are irrational, so we must distinguish between the subjective expectations of irrational investors and the objective expectations of rational investors.
These empirical results are consistent with standard rational asset pricing theory,23 but they are also consistent with explanations based on imperfect rationality.
One key element in the theories coming out of this research is that people do not possess the full set of information assumed in the standard asset price model with rational expectations.
Participants in the stock market have rational expectations: they understand managers’ incentives to work and to manipulate, but they do not know the realized value of cm, and thus of M, and cannot observe V’.
In the rest of this section, we consider the case in which investors have biased beliefs, but characterize expected returns from the perspective of a fully rational observer.
This shows that the incorrect beliefs that trader i has adopted impact asset prices: if they were equal to the truth, the equilibrium outcome would be different.
The cluster gathers 4321 sentences from our corpus. It represents 2.67% of all the sentences selected over the whole period.
The community exists from 1980 to 2009.
The most recurring authors are Kyle Bagwell (36 sentences), Larry Samuelson (32 sentences), Mordecai Kurz (32 sentences), Charles R. Plott (29 sentences), David M. Kreps (29 sentences), Garey Ramey (27 sentences), Carsten Krabbe Nielsen (25 sentences), Douglas Gale (25 sentences), Mark Setterfield (25 sentences), Vincent P. Crawford (23 sentences).
The most recurring journals are Econometrica (359 sentences), The American Economic Review (348 sentences), Economic Theory (328 sentences), The Review of Economic Studies (253 sentences), The RAND Journal of Economics (206 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
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0.0009873
bayesian
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model
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rational_belief
0.0009449
players
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Top TF-IDF terms describing the community for each time window
Top terms 1980-1989
Token
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expectations
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beliefs
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sequential_equilibrium
0.0015869
nash_equilibrium
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model
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equilibrium_model
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Top terms 1990-1999
Token
TF-IDF
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0.0074172
equilibrium
0.0038231
rational_expectations
0.0036372
beliefs
0.0034004
multiple_equilibria
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rational_belief
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equilibrium_path
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belief_equilibrium
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equilibrium_selection
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0.0014540
expectations
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path_beliefs
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Top terms 2000-2009
Token
TF-IDF
equilibria
0.0065538
equilibrium_beliefs
0.0056693
beliefs
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equilibrium
0.0045419
multiple_equilibria
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equilibrium_path
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equilibrium_selection
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bayesian_equilibrium
0.0019059
multiple
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perfect_bayesian
0.0016261
players
0.0014238
intuitive_criterion
0.0014174
rational_expectations
0.0014078
nash
0.0013304
sender
0.0012971
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
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Title
Year
Journal
Authors
Words Similarity
This section examines two directions in which this link between knowledge of rationality and equilibrium refinements has been explored.
Introducing a small amount of adaptive expectations The above discussion is intended mainly to clarify the implications of complete rationality in a world with multiple equilibria.
Although an extreme multiplicity of equilibria continues to prevail, we are able to define “rationality” in a somewhat more satisfactory way than is the case for the static model.
Springer-Verlag 1994 On rational belief equilibria* Mordecai Kurz Department of Economics, Encina Hall, Stanford University, Stanford, CA 94305, USA Received: September 3,1992; revised version May 10,1993 Summary.
Overall, this work raises a cautionary note that the link between rationality and equilibrium refinements is not as straightforward as one might initially think.
An obvious recent example in general equilibrium and game theory is that implemented under the heading of “rational expectations” of endogenizing beliefs and/or expectations, allowing the latter to be determined as an equilibrium condition of the model.4 A further line of response is the noted replacement of the axiom of rationality by the claim that agents follow fixed, context-independent rules.
If, as seems more likely, alternative future policies are possible, then rational agents must have a probability distribution over those policies, and the properties of observed equilibria will depend critically on agents’ beliefs about those policies and their probabilities.
If multiple equilibria exist then the concept of rational expectations equilibrium becomes inconsistent unless it is specified how individuals form their beliefs about the selection of equilibrium.
Berthold Herrendorf, Ákos Valentinyi , Robert Waldmann
0.775
rational expactations equilibrium may be policed by only a few well informed traders, homogeneity of expectations is a working assumption in most traditional studies.
As a result, equilibrium predictions depend only on rationality, in the decision-theoretic sense, and beliefs based on iterated knowledge of rationality.
Springer-Verlag 1996 Rational belief structures and rational belief equilibria* Carsten Krabbe Nielsen Department of Economics, Serra Street at Galvez, Stanford University, Stanford, CA 94305-6072, USA Received: November 2,1994; revised version October 23,1995 Summary.
Rationality and Equilibrium In 1987 Aumann established an intriguing connection between two notions: correlated equilibrium and common knowledge of rationality.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1980-1989
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Although an extreme multiplicity of equilibria continues to prevail, we are able to define “rationality” in a somewhat more satisfactory way than is the case for the static model.
Moreover, one may argue, from this perspective, that consistency and sequential rationality are too restrictive in terms of the correlations that they permit “out-of-equilibrium.”
In the first place, it should be noted that equilibrium ideas often make very heavy assumptions about the rationality of the agents who are making the necessary strategic decisions.
In a rational expectations equilibrium, firms’ perceptions about the law of motion for aggregate capital turn out to be confirmed by the aggregate of the choices made by firms.
Although our definition of rationality is therefore more satisfactory in one sense than it was in the static-model case, Proposition IV and our numerical calculations show that an oversupply of equilibria, and even of equilibrium points, remains a serious issue.
Secondly, a special structure of assumptions can be adopted and incorporated into the general equilibrium, so that rational agents become willing to hold the money despite the above arguments.
It would be desirable6 to construct a better argument, a rational expectations oligopoly, in which dynamic considerations affect the static equilibrium concept.
This example illustrates in a simple way that in rational expectations equilibria with incomplete markets there can be room for the Keynesian notion of volatility of animal spirits.
Recherches Économiques de Louvain / Louvain Economic Review
G. Illing
0.744
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Introducing a small amount of adaptive expectations The above discussion is intended mainly to clarify the implications of complete rationality in a world with multiple equilibria.
Springer-Verlag 1994 On rational belief equilibria* Mordecai Kurz Department of Economics, Encina Hall, Stanford University, Stanford, CA 94305, USA Received: September 3,1992; revised version May 10,1993 Summary.
An obvious recent example in general equilibrium and game theory is that implemented under the heading of “rational expectations” of endogenizing beliefs and/or expectations, allowing the latter to be determined as an equilibrium condition of the model.4 A further line of response is the noted replacement of the axiom of rationality by the claim that agents follow fixed, context-independent rules.
rational expactations equilibrium may be policed by only a few well informed traders, homogeneity of expectations is a working assumption in most traditional studies.
Springer-Verlag 1996 Rational belief structures and rational belief equilibria* Carsten Krabbe Nielsen Department of Economics, Serra Street at Galvez, Stanford University, Stanford, CA 94305-6072, USA Received: November 2,1994; revised version October 23,1995 Summary.
Overall, this work raises a cautionary note that the link between rationality and equilibrium refinements is not as straightforward as one might initially think.
If, as seems more likely, alternative future policies are possible, then rational agents must have a probability distribution over those policies, and the properties of observed equilibria will depend critically on agents’ beliefs about those policies and their probabilities.
If multiple equilibria exist then the concept of rational expectations equilibrium becomes inconsistent unless it is specified how individuals form their beliefs about the selection of equilibrium.
Berthold Herrendorf, Ákos Valentinyi , Robert Waldmann
0.775
As a result, equilibrium predictions depend only on rationality, in the decision-theoretic sense, and beliefs based on iterated knowledge of rationality.
Rationality and Equilibrium In 1987 Aumann established an intriguing connection between two notions: correlated equilibrium and common knowledge of rationality.
We examine whether this equilibrium has strong “rationalizability” properties that makes it the outcome of an introspective “eductive” reasoning, or at a more basic level whether common knowledge of both rationality and the structure of model is sufficient to lead to the equilibrium.
William A. Branch, John Carlson , George W. Evans , Bruce McGough
0.756
Closest sentences from the cluster’s centroid
Among the 150 closest sentences to the cluster’s centroid, 15.33% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
If multiple equilibria exist then the concept of rational expectations equilibrium becomes inconsistent unless it is specified how individuals form their beliefs about the selection of equilibrium.
Berthold Herrendorf, Ákos Valentinyi , Robert Waldmann
0.870
And it is here that we find the real value of the basic notion behind sequential equilibrium: in the way that it frames the discussion, in terms of beliefs that accompany and rationalize equilibrium strategies.
Introducing a small amount of adaptive expectations The above discussion is intended mainly to clarify the implications of complete rationality in a world with multiple equilibria.
Important qualitative features of equilibria often depend 29 Note that learning arguments have very little appeal here, since allowing for the possibility of rational learning requires formulating a new and more complex game.
The possibility of multiple equilibria raises the question of whether market participants with a “collective rationality” would decide on one particular equilibrium.
The general notion of speaking in terms of out-of-equilibrium beliefs that rationalize out-of-equilibrium behavior continues to seem useful, but we seem further than ever from an appropriate exact formulation of this general notion.
John B. Van Huyck , Raymond C. Battalio, Richard O. Beil
0.819
In other words, the eductive approach intends to propose a criterion that, if satisfied by an equilibrium, makes plausible the claim that rational agents can coordinate their expectations on it, but this approach is not interested in providing criteria for equilibrium selection in the presence of multiple LSR equilibria.
In the first place, it should be noted that equilibrium ideas often make very heavy assumptions about the rationality of the agents who are making the necessary strategic decisions.
The analysis of this leading case rationalizes intuition and indicates the likely qualitative features of the equilibrium for more general specifications.
Vincent P. Crawford, Joel Sobel , Ichiro Takahashi
0.811
Top sentences (in general) of the cluster’s centroid
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Title
Year
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Authors
Centroid Similarity
If multiple equilibria exist then the concept of rational expectations equilibrium becomes inconsistent unless it is specified how individuals form their beliefs about the selection of equilibrium.
Equilibria without restrictions on out-of-equilbrium beliefs are examined in Section IV and equilibria with reasonable beliefs are studied in Section V. Section VI concludes and proposes some issues for further research.
And it is here that we find the real value of the basic notion behind sequential equilibrium: in the way that it frames the discussion, in terms of beliefs that accompany and rationalize equilibrium strategies.
While analyses of particular examples have been based on intuitive criteria for out-of-equilibrium beliefs such as the one just given, there have been, at the same time, further attempts to refine generally the notion of a Nash equilibrium.
We feel that such an outcome should be derived as a characteristic of the equilibrium rather than be required at the outset and imposed implicitly as a constraint.
The Canadian Journal of Economics / Revue canadienne d’Economique
Michael Peters
0.842
And it is here that we find the real value of the basic notion behind sequential equilibrium: in the way that it frames the discussion, in terms of beliefs that accompany and rationalize equilibrium strategies.
While analyses of particular examples have been based on intuitive criteria for out-of-equilibrium beliefs such as the one just given, there have been, at the same time, further attempts to refine generally the notion of a Nash equilibrium.
We feel that such an outcome should be derived as a characteristic of the equilibrium rather than be required at the outset and imposed implicitly as a constraint.
Important qualitative features of equilibria often depend 29 Note that learning arguments have very little appeal here, since allowing for the possibility of rational learning requires formulating a new and more complex game.
Equilibria without restrictions on out-of-equilbrium beliefs are examined in Section IV and equilibria with reasonable beliefs are studied in Section V. Section VI concludes and proposes some issues for further research.
Our purpose is to bring out that this behavioural assumption helps much in the computation of equilibrium and enhances the likelihood that such an outcome will eventually be attained.
The above example has shown that different perfect equilibria may have different degrees of plausibility and that such plausibility is naturally discussed in terms of the beliefs of players that sustain the equilibrium.
Introducing a small amount of adaptive expectations The above discussion is intended mainly to clarify the implications of complete rationality in a world with multiple equilibria.
Richard Portes , Hélène Rey , Paul De Grauwe , Seppo Honkapohja
0.826
Top sentences 2000-2009
Sentence
Title
Year
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Authors
Centroid Similarity
If multiple equilibria exist then the concept of rational expectations equilibrium becomes inconsistent unless it is specified how individuals form their beliefs about the selection of equilibrium.
The economists’ concern with equilibrium should not be merely justified by the need for simplifying the analysis, but by a more general concern with the explanation of an important feature of the real world?that is, its substantial stability over time.
It is clear that the validity of any equilibrium theory should not be judged by its ability to match any specific market statistic but rather by the range and depth of market phenomena and “anomalies” that the theory is capable of explaining.
The cluster gathers 980 sentences from our corpus. It represents 0.61% of all the sentences selected over the whole period.
The community exists from 1980 to 1989.
The most recurring authors are Sanford J. Grossman (20 sentences), Torben M. Andersen (19 sentences), David M. Kreps (16 sentences), Margaret Bray (16 sentences), Robert G. King (16 sentences), Joseph E. Stiglitz (14 sentences), Robert E. Verrecchia (12 sentences), Beth Allen (11 sentences), John Roberts (11 sentences), Paul Milgrom (10 sentences).
The most recurring journals are Econometrica (91 sentences), The American Economic Review (73 sentences), Journal of Post Keynesian Economics (67 sentences), The Review of Economic Studies (66 sentences), The Journal of Finance (57 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Suppose that individual agents’ expectations are rational in the sense of Muth: they know the structure of the economy as summarized in the model and the values of all endogenous variables realized during period t; they waste none of this information when forming their expectations; and they assume that all other agents do likewise.
If individual economic agents form expectations by correctly utilizing the information they possess, then their expectations are said to be rational.7 Rational processing of information does not require full informational efficiency.
This view was expressed in examining the informational assumptions involved in modelling rational expectations as well as some of the more fundamental inco sistencies inherent in its policy implications.
Since then, imperfect information, information costs, learning about the “true” model and its parameters, and recognition lags have become increasingly important.4 In this process, rational expectations may become operationally indistinguishable from irrational expectations, but this is no worse than in the case of utility and profit maximization, which have nevertheless remained powerful tools of analysis.
The question of the informational requirements of rational expectations has led some to doubt the empirical applicability of these models, but this seems to be as yet unresolved: there may be specific situations in which these requirements are approximately met, but until sound empirical investigations have been carried out, this remains an open question.
Similarly this analysis shows that the definition of rational expectations as being “expectations formed conditional on all available information” is ambiguous since it may not be possible to define the relevant information set in a precise way.
rationality of expectations is taken more loosely to mean that transactors make the best use of available information, then Hayek’s transactors have rational expectations”.
Instead of assuming that the rational expectations equilibrium is a competitive one, informed traders with rational expectations are assumed to be imperfect competitors, who take into account explicitly the effect their trading has on prices.
A large body of literature on rational expectations models has developed in recent years.2 Much of it has been concerned with fully revealing equilibria, in which informational asymmetries that might originally exist disappear in equilibrium.
An earlier version of this paper was prepared for the SSRC Conference on Rational Expectations, and it was entitled “Rational Expectations and the Allocation of Resources Under Asymmetric Information: A Survey”.
These two series together suggest that some knowledge about other traders’ preferences may be a necessary condition for the operation of rational expectations principles in markets.
The failure of theorists to explain how economic agents can know what they are presumed to know has been at the heart of Shackle’s criticisms of conventional theory; and it is to the credit of rational expectations theorists that they have taken up the challenge.
In general the circumstances where rational expectations might seem appropriate are those where substantial information is readily available to a large number of agents in a market, where the agents are clearly trying to make the best use of that information and where the costs of using the information are not prohibitive and the costs of not using it are high.
1 On the subject of the information set used in forming expectations, it might have been rational for the reader to expect us to distinguish between weak, semi-strong and strong rationality, paralleling in an obvious way the definition of efficiency.
Our feeling is that, since agents in the real world are obviously heterogeneous in terms of information-processing abilities, the practice of assuming rational expectations is relatively more defensible when agents who can process information in a very sophisticated manner have a disproportionately large effect on equilibrium.
In rational expectations models agents are often assumed to take actions which are optimal conditionally on information available at the time the action is taken.
Uninformed agents may recognise that market statistics reveal information, and a rational expectations equilibrium where prices are used by the uninformed agents as an information signal is analysed in section 5.
Zeitschrift für Nationalökonomie / Journal of Economics
Torben M. Andersen
0.865
If individual economic agents form expectations by correctly utilizing the information they possess, then their expectations are said to be rational.7 Rational processing of information does not require full informational efficiency.
These early models of rational expectations equilibrium prices that aggregate information do not encompass the sort of noise that allows us to avoid the Grossman-Stiglitz “informativeness paradox,” but they inspired later work which continues to this day, advancing our understanding of markets in which some agents hold private information and all agents try to learn from prices what others know.
One can easily accept the rational expectations idea while simultaneously denying the relevance of this special case, and from a more general viewpoint, that idea does no more than compel us to think of agents gathering and utilizing information up to the point at which the marginal cost to them of acquiring it equals the marginal benefit that its possession confers.11 In a money-using economy, the marginal benefit from acquiring information must be the reduction in transactions costs that agents gain by being better informed.
The Canadian Journal of Economics / Revue canadienne d’Economique
David Laidler
0.856
Instead of assuming that the rational expectations equilibrium is a competitive one, informed traders with rational expectations are assumed to be imperfect competitors, who take into account explicitly the effect their trading has on prices.
Since then, imperfect information, information costs, learning about the “true” model and its parameters, and recognition lags have become increasingly important.4 In this process, rational expectations may become operationally indistinguishable from irrational expectations, but this is no worse than in the case of utility and profit maximization, which have nevertheless remained powerful tools of analysis.
The question of whether prices allow such inferences is the question of whether a rational expectations equilibrium exists that reveals to the uninformed agents the information possessed by the informed agents.
Using a general framework where information is costly, Darby analyzes how heterogeneous expectations may exist in an equilibrium characterized by individually rational expectations.
The failure of theorists to explain how economic agents can know what they are presumed to know has been at the heart of Shackle’s criticisms of conventional theory; and it is to the credit of rational expectations theorists that they have taken up the challenge.
The rational expectations equilibrium concept has, however, recently allowed a rigorous analysis of information dissemination, and we shall employ it to clarify the relation between information and speculation.
Imperfect information on the part of rational agents about markets in which they are not operating stem from the fact that some pieces of information have costs that exceed their perceived value.
Uninformed agents may recognise that market statistics reveal information, and a rational expectations equilibrium where prices are used by the uninformed agents as an information signal is analysed in section 5.
Zeitschrift für Nationalökonomie / Journal of Economics
Torben M. Andersen
0.865
If individual economic agents form expectations by correctly utilizing the information they possess, then their expectations are said to be rational.7 Rational processing of information does not require full informational efficiency.
These early models of rational expectations equilibrium prices that aggregate information do not encompass the sort of noise that allows us to avoid the Grossman-Stiglitz “informativeness paradox,” but they inspired later work which continues to this day, advancing our understanding of markets in which some agents hold private information and all agents try to learn from prices what others know.
One can easily accept the rational expectations idea while simultaneously denying the relevance of this special case, and from a more general viewpoint, that idea does no more than compel us to think of agents gathering and utilizing information up to the point at which the marginal cost to them of acquiring it equals the marginal benefit that its possession confers.11 In a money-using economy, the marginal benefit from acquiring information must be the reduction in transactions costs that agents gain by being better informed.
The Canadian Journal of Economics / Revue canadienne d’Economique
David Laidler
0.856
Instead of assuming that the rational expectations equilibrium is a competitive one, informed traders with rational expectations are assumed to be imperfect competitors, who take into account explicitly the effect their trading has on prices.
Since then, imperfect information, information costs, learning about the “true” model and its parameters, and recognition lags have become increasingly important.4 In this process, rational expectations may become operationally indistinguishable from irrational expectations, but this is no worse than in the case of utility and profit maximization, which have nevertheless remained powerful tools of analysis.
The question of whether prices allow such inferences is the question of whether a rational expectations equilibrium exists that reveals to the uninformed agents the information possessed by the informed agents.
Using a general framework where information is costly, Darby analyzes how heterogeneous expectations may exist in an equilibrium characterized by individually rational expectations.
The failure of theorists to explain how economic agents can know what they are presumed to know has been at the heart of Shackle’s criticisms of conventional theory; and it is to the credit of rational expectations theorists that they have taken up the challenge.
The rational expectations equilibrium concept has, however, recently allowed a rigorous analysis of information dissemination, and we shall employ it to clarify the relation between information and speculation.
Imperfect information on the part of rational agents about markets in which they are not operating stem from the fact that some pieces of information have costs that exceed their perceived value.
The cluster gathers 1353 sentences from our corpus. It represents 0.84% of all the sentences selected over the whole period.
The community exists from 1980 to 1989.
The most recurring authors are Thomas J. Sargent (36 sentences), Matthew T. Holt (25 sentences), Margaret Bray (24 sentences), Stephen J. Turnovsky (19 sentences), Allan W. Gregory (18 sentences), Jeffrey A. Frankel (18 sentences), Jagdeep S. Bhandari (17 sentences), Christopher A. Sims (15 sentences), Julio J. Rotemberg (15 sentences), Bennett T. McCallum (14 sentences).
The most recurring journals are Journal of Political Economy (137 sentences), Journal of Money, Credit and Banking (130 sentences), Econometrica (109 sentences), The American Economic Review (104 sentences), American Journal of Agricultural Economics (70 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Rational expectations macroeconomic models provide another case in point.
The application of the rational expectations hypothesis in theory and practice Because of the great difficulty in estimating rational expectation models the development of the concept in the New Classical Macroeconomics has been largely theoretical.
This paper has illustrated a well-known fact, that incorrectly imposing the assumption of rational expectations on an otherwise correct model can lead to unreasonable estimates of important parameters.
Historical investigations on the subject of rational expectations are of interest since it is held that this theory has revived the teachings of the classics, inasmuch as it provides the cornerstone of the recently developed approach known as “new classical macroeconomics.”
Rational Expectations and Macroeconomics Analysis Macroeconomics has been transformed in the last dozen years by the rational -expectations hypothesis and its associated econometric practices.
FOLLOWING the innovations in economic rtheory using rational expectations, economists have devoted increasing attention to the development of econometric models that are compatible with the rational hypothesis.
My purpose is to allude to specific formal models that exist in the literature on rational expectations models, and that can be used to support Sims’ actual econometric practices and many of his remarks.
While this argument is not without merit, many of the boundedly rational models provide an incomplete framework to address the asymptotic issue of whether or not there is convergence to a stationary rational expectations equilibrium.
ROGER T. KAUFMAN GEOFFREY WOGLOM* Estimating Models with Rational Expectations IN THIS PAPER we wish to examine the assumptions needed to estimate models in which expectations of future variables are formed rationally.
In Section I, we briefly review the problems of estimating models in the presence of rational expectations and explain how our analysis seeks to overcome these problems.
Recherches Économiques de Louvain / Louvain Economic Review
Christian BORDES , Michael DRISCOLL , Marc-Olivier STRAUSS-KAHN
0.893
My purpose is to allude to specific formal models that exist in the literature on rational expectations models, and that can be used to support Sims’ actual econometric practices and many of his remarks.
Recherches Économiques de Louvain / Louvain Economic Review
Christian BORDES , Michael DRISCOLL , Marc-Olivier STRAUSS-KAHN
0.893
My purpose is to allude to specific formal models that exist in the literature on rational expectations models, and that can be used to support Sims’ actual econometric practices and many of his remarks.
The cluster gathers 6777 sentences from our corpus. It represents 4.19% of all the sentences selected over the whole period.
The community exists from 1990 to 2019.
The most recurring authors are Alvaro Sandroni (51 sentences), William A. Branch (45 sentences), Andrew Postlewaite (43 sentences), Mordecai Kurz (41 sentences), Botond Kőszegi (40 sentences), Markus K. Brunnermeier (39 sentences), Carsten Krabbe Nielsen (38 sentences), Larry Samuelson (36 sentences), Michael Mandler (36 sentences), Francesco Bianchi (35 sentences).
The most recurring journals are Economic Theory (707 sentences), The American Economic Review (562 sentences), The Review of Economic Studies (396 sentences), Econometrica (379 sentences), The Economic Journal (319 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1990-1999
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Top terms 2000-2009
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Top terms 2010-2019
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Introduction For over one hundred years, economists have operated under the assumption that agents are rational.
Maria Apostolova-Mihaylova, William Cooper , Gail Hoyt , Emily C. Marshall
0.837
Since the literature which will be discussed in this essay is concerned with the question how economic agents come to behave ‘rationally’, it is useful to begin by considering in more detail the meaning of the rationality assumption in economics.
Yet, the theory of rational expectations in economics and game theory is based on the premise that agents * This research was supported by NSF Grant IRI-8814954 to Stanford University and by the Summer 1990 Economics Program at the Santa Fe Institute.
Although modern economics has evolved under the conventional assumption that economic agents are perfectly rational, recent studies have revealed that agents are 1 The seminal articles in this context are those of Bhagwati et al.
Such an occurrence opens the door for the instructor to have a discussion about the importance of rationality of agents for the predictions of not only this particular model, but also many other economic models that we teach.
The bounded rationality literature argues that very few agents have the capability, regardless of cost or mean squared error, to form rational expectations.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Daniel Kahneman
0.805
It has been argued that it is obvious that economic agents are never perfectly rational, and that the study of models with rational agents is a pure thought experiment without any claims to empirical relevance.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Since the literature which will be discussed in this essay is concerned with the question how economic agents come to behave ‘rationally’, it is useful to begin by considering in more detail the meaning of the rationality assumption in economics.
Yet, the theory of rational expectations in economics and game theory is based on the premise that agents * This research was supported by NSF Grant IRI-8814954 to Stanford University and by the Summer 1990 Economics Program at the Santa Fe Institute.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Daniel Kahneman
0.805
It has been argued that it is obvious that economic agents are never perfectly rational, and that the study of models with rational agents is a pure thought experiment without any claims to empirical relevance.
In our approach, agents are endowed with correct models of the economy, but the costs of using these models lead to limitations in agents’ abilities or incentives to deduce immediately the associated rational-expectations equilibria.
1 Introduction The potential complexity of equilibrium strategies in dynamic economic models raises suspicion about the assumption of rationality of economic agents.
Such an occurrence opens the door for the instructor to have a discussion about the importance of rationality of agents for the predictions of not only this particular model, but also many other economic models that we teach.
Margo Bergman , G. Dirk Mateer , Michael Reksulak, Jonathan C. Rork, Rick K. Wilson , David Zirkle
0.811
The bounded rationality literature argues that very few agents have the capability, regardless of cost or mean squared error, to form rational expectations.
Turning to specific claims built into modern economic models these authors single out the ‘the twin assumptions of “rational expectations” and a representative agent’ as particularly unrealistic.
However, much of this work rests on either behavioral assumptions or, in the case of economists, is driven by experimental research,2 where the implicit assumption is bounded rationality.3 The simple finite-horizon model that we use in this paper has fully rational agents.
It is one thing to present the rational economic agent as an ideal type which might capture certain tendencies in human behaviour, and to propose that economics uses it as a working model in those types of application for which it proves to have predictive and explanatory power.
Rationally irrational agents choose their utility-maximizing combination of wealth and irrationality based on an unbiased judgment about the tradeoffs.
We expect the economic agents to be rational in their expectations, in the sense of consistency of choice, conformity with self-interest and maximizing behavior, and following reason in general.
We believe that such phenomena are strongly related to agents’ rationality and our framework can be easily adopted, offering a totally new theorizing of the problem.
Although modern economics has evolved under the conventional assumption that economic agents are perfectly rational, recent studies have revealed that agents are 1 The seminal articles in this context are those of Bhagwati et al.
Agents are seen as rationally heterogeneous in the sense that each predictor choice is optimal for them; strictly speaking, agents’ expectations are seen as boundedly rational and consistent with optimizing behavior.
BROOKS B, ROBINSON* “Rational economic agents” making optimal choices, such as shifting to less expensive products, is a funda mental paradigm for theoretical and applied econo mics.
We believe that such phenomena are strongly related to agents’ rationality and our framework can be easily adopted, offering a totally new theorizing of the problem.
Although modern economics has evolved under the conventional assumption that economic agents are perfectly rational, recent studies have revealed that agents are 1 The seminal articles in this context are those of Bhagwati et al.
We believe that such phenomena are strongly related to agents’ rationality and our framework can be easily adopted, offering a totally new theorizing of the problem.
Although modern economics has evolved under the conventional assumption that economic agents are perfectly rational, recent studies have revealed that agents are 1 The seminal articles in this context are those of Bhagwati et al.
The model of the agent that has been presented here has a different architecture, which may be more difficult to translate into the theoretical language of economics.
With the help of an economics course and sufficient discussion, the agent’s preferences might conform to those in the abstraction the economist has associated with d/?.
Yet, the theory of rational expectations in economics and game theory is based on the premise that agents * This research was supported by NSF Grant IRI-8814954 to Stanford University and by the Summer 1990 Economics Program at the Santa Fe Institute.
These kinds of conditions may seem far-fetched for any real-world economy, but they are representative of all “justifications” of the representative agent approach.
We believe that such phenomena are strongly related to agents’ rationality and our framework can be easily adopted, offering a totally new theorizing of the problem.
The model of the agent that has been presented here has a different architecture, which may be more difficult to translate into the theoretical language of economics.
Researchers in this field usually preserve the assumption that an agent is rational in the economic * This work would not have been possible without the collaboration of Eli Zvuluny who built the site which served as the platform for the experiments.
We assume that although agents act, whenever they can, in order to maximize the expected utility derived from the collective decision, they do not observe their own utility.
Although modern economics has evolved under the conventional assumption that economic agents are perfectly rational, recent studies have revealed that agents are 1 The seminal articles in this context are those of Bhagwati et al.
With the help of an economics course and sufficient discussion, the agent’s preferences might conform to those in the abstraction the economist has associated with d/?.
The cluster gathers 7550 sentences from our corpus. It represents 4.66% of all the sentences selected over the whole period.
The community exists from 1990 to 2019.
The most recurring authors are Robert Sugden (134 sentences), Chris Starmer (63 sentences), Botond Kőszegi (61 sentences), Matthew Rabin (55 sentences), Eric Sheppard (47 sentences), Trevor J. Barnes (46 sentences), Pietro Ortoleva (44 sentences), Walter Bossert (42 sentences), B. Douglas Bernheim (39 sentences), Charles R. Plott (38 sentences).
The most recurring journals are The American Economic Review (707 sentences), Economic Theory (517 sentences), The Economic Journal (445 sentences), Public Choice (399 sentences), Econometrica (346 sentences).
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Top TF-IDF terms describing the community for each time window
Top terms 1990-1999
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Top terms 2010-2019
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Statement of Problem The possibility that decision makers shape their economic behavior on the basis of rational expectations has profound implications for many empirical problems and policy issues.
Rationality is seen as intelligently maximizing such a payoff function, using all the available instruments, subject to feasibility.1 This canonical formulation of “rational choice” in standard theory is critically scrutinized in this note, identifying distinct inadequacies in different contexts.
There was a time, not long ago, when the foundations of rational-choice theory appeared firm, and when the job of the economic theorist seemed to be one of drawing out the often complex implications of a fairly simple and uncontroversial system of axioms.
631-661 Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice JORG RIESKAMP, JEROME R. BUSEMEYER, AND BARBARA A. MELLERS* Most economists define rationality in terms of consistency principles.
Jörg Rieskamp , Jerome R. Busemeyer, Barbara A. Mellers
0.807
These results put out a challenge to the economic theorist, to provide some underpinnings to such a behavior, while applying the tools of rational choice theory.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Christoph Engel
0.803
In this model, choice anomalies are not seen as violations of “rationality,” but they rather emerge as equilibrium behavior in a specific market environment.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Eilert Herms
0.791
It seems that more and more economists realized the problem of having too many degrees of freedom to rationalize behavior: Given any empirical observation, it is always possible to assume “appropriate” preferences to show that the observation is in line with the rational actor paradigm or, to put it differently, that real world phenomena are nothing but equilibrium outcomes.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Steffen Huck
0.791
These rationality- based paradigms have produced a rich and useful body of theory, yet their ability to describe actual decision-making processes has not always matched the mathematical elegance of their derived decision rules; and as a result, these models have come under increasing attack in recent years by cognitive psychologists and selected economists.
Paul N. Wilson , Roger D. Dahlgran , Neilson C. Conklin
0.790
Mainstream economic theory and attributes of progress Examples from rational choice theorv The issue in this section is the extent to which rational choice theory and its subset, game theory, provide explanations for real-world phenomena previously unexplained, are tending to greater empirical domain and prediction, and exhibit increased practical policy-solving ability.
Our purpose is to reexamine the domain of application of this approach, which has included, but certainly does not require, the rational choice hypothesis.
We find a modern, academic, expression of the belief in economic rationality in theoretical assumptions about human behavior and choice-making of neoclassical economics.
The assumption of a constant rate of discount is not merely sufficient to generate time-consistent choices; it may be implied by a certain type of rational reasoning.
Given how private agents form their expectations, a rational policymaker, in choosing policy to maximize UO, the expected value of present and future realizations of his preference function, has to signal that his mode of behavior is in fact rational, in order to avoid being mistakenly thought to have become compulsively opportunistic.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Justus Haucap , Christian Wey , Jens F. Barmbold
0.781
An aspect of the rationality of market behaviour assumed in mainstream economic theory is that revealed preferences, choices based on self-interest, will be internally consistent.
The economists’ familiar prejudices against the rationality of deliberative choices made in order to constrain choices become relevant here, but only as applied within the domain so defined.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
James M. Buchanan
0.779
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Statement of Problem The possibility that decision makers shape their economic behavior on the basis of rational expectations has profound implications for many empirical problems and policy issues.
Rationality is seen as intelligently maximizing such a payoff function, using all the available instruments, subject to feasibility.1 This canonical formulation of “rational choice” in standard theory is critically scrutinized in this note, identifying distinct inadequacies in different contexts.
There was a time, not long ago, when the foundations of rational-choice theory appeared firm, and when the job of the economic theorist seemed to be one of drawing out the often complex implications of a fairly simple and uncontroversial system of axioms.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Eilert Herms
0.791
It seems that more and more economists realized the problem of having too many degrees of freedom to rationalize behavior: Given any empirical observation, it is always possible to assume “appropriate” preferences to show that the observation is in line with the rational actor paradigm or, to put it differently, that real world phenomena are nothing but equilibrium outcomes.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Steffen Huck
0.791
These rationality- based paradigms have produced a rich and useful body of theory, yet their ability to describe actual decision-making processes has not always matched the mathematical elegance of their derived decision rules; and as a result, these models have come under increasing attack in recent years by cognitive psychologists and selected economists.
Paul N. Wilson , Roger D. Dahlgran , Neilson C. Conklin
0.790
Mainstream economic theory and attributes of progress Examples from rational choice theorv The issue in this section is the extent to which rational choice theory and its subset, game theory, provide explanations for real-world phenomena previously unexplained, are tending to greater empirical domain and prediction, and exhibit increased practical policy-solving ability.
Our purpose is to reexamine the domain of application of this approach, which has included, but certainly does not require, the rational choice hypothesis.
The assumption of a constant rate of discount is not merely sufficient to generate time-consistent choices; it may be implied by a certain type of rational reasoning.
Given how private agents form their expectations, a rational policymaker, in choosing policy to maximize UO, the expected value of present and future realizations of his preference function, has to signal that his mode of behavior is in fact rational, in order to avoid being mistakenly thought to have become compulsively opportunistic.
The economists’ familiar prejudices against the rationality of deliberative choices made in order to constrain choices become relevant here, but only as applied within the domain so defined.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
James M. Buchanan
0.779
Top sentences 2000-2009
Sentence
Title
Year
Journal
Authors
Centroid Similarity
631-661 Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice JORG RIESKAMP, JEROME R. BUSEMEYER, AND BARBARA A. MELLERS* Most economists define rationality in terms of consistency principles.
Jörg Rieskamp , Jerome R. Busemeyer, Barbara A. Mellers
0.807
These results put out a challenge to the economic theorist, to provide some underpinnings to such a behavior, while applying the tools of rational choice theory.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Christoph Engel
0.803
We find a modern, academic, expression of the belief in economic rationality in theoretical assumptions about human behavior and choice-making of neoclassical economics.
An aspect of the rationality of market behaviour assumed in mainstream economic theory is that revealed preferences, choices based on self-interest, will be internally consistent.
Rational choice is a useful heuristic even where its applicability is quite limited: if we assume it to be true at all times and analyze events under this assumption, then we can deduce, by comparison and inference, which predispositions and institutions will have led to outcomes.
Rather, without committing to a specific decision procedure, we merely want to show that a familiar and very simple notion of rationality, based on a single preference relation, imposes restrictions on observed choices that are reasonably tight, yet consistent with a wide range of empirical observations.
It may, however, be damaging—and hence crazy, in a broader sense of rationality—to insist on reducing a phenomenon to its choice-theoretic aspects, and is surely obnoxious and stultifying to insist that everyone else see the phenomenon in only this way, too.2 While some economists emphasise rational choice models as the core of economics, others define economics as the interpretation of ‘The Laws of The Market’.
With multiple rational preference types, not all ordinally alike, an interior rational expectation dynamic steady-state robustly emerges: It may be impossible to draw any clear inference from history even while it continues to accumulate privately-informed decisions.
In this model, choice anomalies are not seen as violations of “rationality,” but they rather emerge as equilibrium behavior in a specific market environment.
Behavioral Assumptions.—The correct elicitation of preferences, which is key to our analysis, relies strongly on the assumption that agents are rational.
Sylvain Chassang , Gerard Padró i Miquel, Erik Snowberg
0.776
The existence of a robust share of near rational actors suggests using a mix of preference theories for modeling behavior rather than a single theory, which would yield systematically biased results.
Instead of specifying and defining a theory of rational choice, Kahneman and Tversky assume that rational choice must exhibit consistency and coherence as defined by a concept of “procedural invariance.” They assume that it is a necessary condition.
3 Rational preferences and relevant priors: characterizations In this section, we first briefly introduce our basic assumptions on preferences, characterizing what we earlier dubbed the “MBA” model.
This work highlights the fact that any description of rational choice necessar ily entails both describing preferences over outcomes and beliefs regarding the likeli hood that an action will lead to a particular outcome.
Without calling any of the above into question, the present article shifts the focus onto the second part of the simple rational choice model, which, I submit, is also flawed.
Accounting for reference-dependent preferences A large body of evidence has emerged suggesting that people deviate from several rationality assumptions underlying neoclassical economic theory.
Arthur E. Attema , Marieke Krol , Job van Exel , Werner B. F. Brouwer
0.755
Third, we seek for violations of rational choice theory that go beyond the issue * Correspondence to: Nicolas de Roos, Faculty of Economics and Business, Merewether Building H04, University of Sydney, NSW of which functional best fits the data.
Our purpose is to reexamine the domain of application of this approach, which has included, but certainly does not require, the rational choice hypothesis.
3 Rational preferences and relevant priors: characterizations In this section, we first briefly introduce our basic assumptions on preferences, characterizing what we earlier dubbed the “MBA” model.
In addition, much of economic theory is built on the premise of preference maximizing behavior, and it is not clear if, and how, one may accommodate the reference dependent behavior of the form above within the rational choice paradigm without deserting this premise entirely.
These results put out a challenge to the economic theorist, to provide some underpinnings to such a behavior, while applying the tools of rational choice theory.
Concluding Remarks Inferring preferences from observed choices is fraught with difficulties because both preferences and bounded rationality can drive choices.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Stephan Podes
0.835
Rather, without committing to a specific decision procedure, we merely want to show that a familiar and very simple notion of rationality, based on a single preference relation, imposes restrictions on observed choices that are reasonably tight, yet consistent with a wide range of empirical observations.
631-661 Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice JORG RIESKAMP, JEROME R. BUSEMEYER, AND BARBARA A. MELLERS* Most economists define rationality in terms of consistency principles.
Jörg Rieskamp , Jerome R. Busemeyer, Barbara A. Mellers
0.834
The theory of rational choice, extended to account for random preference shocks, discreteness in choices, and heterogeneity in preferences among decision-makers, and formulated in terms of attributes of choices, is widely applied in the social sciences.
Accounting for reference-dependent preferences A large body of evidence has emerged suggesting that people deviate from several rationality assumptions underlying neoclassical economic theory.
Arthur E. Attema , Marieke Krol , Job van Exel , Werner B. F. Brouwer
0.830
It seems that more and more economists realized the problem of having too many degrees of freedom to rationalize behavior: Given any empirical observation, it is always possible to assume “appropriate” preferences to show that the observation is in line with the rational actor paradigm or, to put it differently, that real world phenomena are nothing but equilibrium outcomes.
Our purpose is to reexamine the domain of application of this approach, which has included, but certainly does not require, the rational choice hypothesis.
3 Rational preferences and relevant priors: characterizations In this section, we first briefly introduce our basic assumptions on preferences, characterizing what we earlier dubbed the “MBA” model.
In addition, much of economic theory is built on the premise of preference maximizing behavior, and it is not clear if, and how, one may accommodate the reference dependent behavior of the form above within the rational choice paradigm without deserting this premise entirely.
These results put out a challenge to the economic theorist, to provide some underpinnings to such a behavior, while applying the tools of rational choice theory.
Such considera tions are not unparalleled in the economic literature: contrary to the prevailing assumption that individual preferences are given, as merely exogenous to economic decisions, individual choices are not infre quently conceived of as something more than mere attempts by ra tional economic agents to maximise their expected utilities.
Concluding Remarks Inferring preferences from observed choices is fraught with difficulties because both preferences and bounded rationality can drive choices.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Stephan Podes
0.835
FINAL COMMENTS The economist’s standard way of explaining choice behavior is by seeking an ordering, whose maximization is consistent with the behavior.
Rather, without committing to a specific decision procedure, we merely want to show that a familiar and very simple notion of rationality, based on a single preference relation, imposes restrictions on observed choices that are reasonably tight, yet consistent with a wide range of empirical observations.
I shall focus on two lines of argument of particular interest here as they are beginning to open up new and exciting theoretical accounts of individual choice behavior.
631-661 Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice JORG RIESKAMP, JEROME R. BUSEMEYER, AND BARBARA A. MELLERS* Most economists define rationality in terms of consistency principles.
Jörg Rieskamp , Jerome R. Busemeyer, Barbara A. Mellers
0.834
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Our purpose is to reexamine the domain of application of this approach, which has included, but certainly does not require, the rational choice hypothesis.
The theory of rational choice, extended to account for random preference shocks, discreteness in choices, and heterogeneity in preferences among decision-makers, and formulated in terms of attributes of choices, is widely applied in the social sciences.
It seems that more and more economists realized the problem of having too many degrees of freedom to rationalize behavior: Given any empirical observation, it is always possible to assume “appropriate” preferences to show that the observation is in line with the rational actor paradigm or, to put it differently, that real world phenomena are nothing but equilibrium outcomes.
These results put out a challenge to the economic theorist, to provide some underpinnings to such a behavior, while applying the tools of rational choice theory.
FINAL COMMENTS The economist’s standard way of explaining choice behavior is by seeking an ordering, whose maximization is consistent with the behavior.
Rather, without committing to a specific decision procedure, we merely want to show that a familiar and very simple notion of rationality, based on a single preference relation, imposes restrictions on observed choices that are reasonably tight, yet consistent with a wide range of empirical observations.
I shall focus on two lines of argument of particular interest here as they are beginning to open up new and exciting theoretical accounts of individual choice behavior.
631-661 Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice JORG RIESKAMP, JEROME R. BUSEMEYER, AND BARBARA A. MELLERS* Most economists define rationality in terms of consistency principles.
Jörg Rieskamp , Jerome R. Busemeyer, Barbara A. Mellers
0.830
The essential idea behind the discovered preference hypothesis is that rational-choice theory is descriptive of the behaviour of economic agents who, through experience and deliberation, have learned to act in accordance with their underlying preferences; deviations from that theory are interpreted as short-lived errors.
3 Rational preferences and relevant priors: characterizations In this section, we first briefly introduce our basic assumptions on preferences, characterizing what we earlier dubbed the “MBA” model.
In addition, much of economic theory is built on the premise of preference maximizing behavior, and it is not clear if, and how, one may accommodate the reference dependent behavior of the form above within the rational choice paradigm without deserting this premise entirely.
Such considera tions are not unparalleled in the economic literature: contrary to the prevailing assumption that individual preferences are given, as merely exogenous to economic decisions, individual choices are not infre quently conceived of as something more than mere attempts by ra tional economic agents to maximise their expected utilities.
Concluding Remarks Inferring preferences from observed choices is fraught with difficulties because both preferences and bounded rationality can drive choices.
Ola Andersson , Håkan J. Holm , Jean-Robert Tyran, Erik Wengström
0.838
Accounting for reference-dependent preferences A large body of evidence has emerged suggesting that people deviate from several rationality assumptions underlying neoclassical economic theory.
Arthur E. Attema , Marieke Krol , Job van Exel , Werner B. F. Brouwer
0.830
INTRODUCTION Many theories of human behavior, in economics and neighboring disciplines, assume that a set of preferences drives individual decision making.
The presumption of rational economic behaviour requires a specific structure to preference orderings that is characterised by insatiability, transitivity, diminishing marginal utility, etc.
Intertemporal cluster 101: players, games, game_theory, player, game
The cluster gathers 5229 sentences from our corpus. It represents 3.23% of all the sentences selected over the whole period.
The community exists from 1990 to 2019.
The most recurring authors are Vincent P. Crawford (125 sentences), Larry Samuelson (103 sentences), Miguel A. Costa-Gomes (76 sentences), Robert Sugden (63 sentences), Ernst Fehr (58 sentences), Nagore Iriberri (54 sentences), Philip J. Reny (49 sentences), Muhamet Yildiz (48 sentences), Drew Fudenberg (45 sentences), Charles A. Holt (39 sentences).
The most recurring journals are Economic Theory (562 sentences), Econometrica (536 sentences), The American Economic Review (468 sentences), The Review of Economic Studies (366 sentences), The Economic Journal (306 sentences).
Top TF-IDF terms describing the community
Token
TF-IDF
players
0.0127050
games
0.0054651
game_theory
0.0045799
player
0.0043309
game
0.0043242
nash
0.0042290
strategies
0.0036764
nash_equilibrium
0.0033148
payoffs
0.0027632
payoff
0.0026007
rational_players
0.0023319
player’s
0.0020431
rationalizable
0.0019151
strategy
0.0018624
strategic
0.0018106
equilibria
0.0017900
common_knowledge
0.0017452
beliefs
0.0015537
game_theoretic
0.0014971
subgame
0.0014669
Top TF-IDF terms describing the community for each time window
Top terms 1990-1999
Token
TF-IDF
players
0.0117917
game
0.0066515
games
0.0065878
game_theory
0.0064546
player
0.0056381
nash
0.0049182
nash_equilibrium
0.0042186
strategies
0.0033849
rational_players
0.0031468
common_knowledge
0.0030566
payoffs
0.0029982
game_theoretic
0.0026933
strategy
0.0022338
subgame
0.0021641
payoff
0.0019396
Top terms 2000-2009
Token
TF-IDF
players
0.0136548
games
0.0070465
game
0.0061958
player
0.0050865
game_theory
0.0048940
nash
0.0045579
nash_equilibrium
0.0038848
rational_players
0.0036916
strategies
0.0036271
player’s
0.0032632
payoffs
0.0031800
payoff
0.0025301
behavior_vol
0.0024127
subgame
0.0023542
common_knowledge
0.0021945
Top terms 2010-2019
Token
TF-IDF
players
0.0100870
games
0.0085520
player
0.0052805
game
0.0052667
game_theory
0.0037718
nash
0.0036143
strategies
0.0035514
nash_equilibrium
0.0029992
payoff
0.0027327
player’s
0.0026067
rationalizable
0.0024997
payoffs
0.0023711
equilibria
0.0023454
rationalizability
0.0022546
strategic
0.0021130
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Our treatment unifies both “rational” and “boundedly rational” approaches, thus emphasizing that modeling the behavior of misspecified players does not constitute a large departure from the standard framework.
Decision theory and game theory may have failed to answer the normative question of what constitutes rational behaviour, but they have clarified some of the issues involved, and in the process obtained some understanding on the issue of what might constitute rational behaviour.
In this section we shall briefly consider the case that players are “rational” in the sense of Definition 1, and that this fact, together with players’ preferences over pure strategy outcomes, is common knowledge among the players.
Economics, Rationality, and Institutions So to understand the importance of noncooperative game theory, we need to appreciate why rational-choice analysis should be so important in economics.
I consider Harstad and Selten’s examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory, commenting on the challenges that remain and the most promising ways forward.
We canvas some parameters of intellectual progress to assess how the rational choice and game theory elements of mainstream economics in the recent past measure up to these interpretations.
Some deep problems are raised when we try to adapt this theory so that it applies to the choices of rational individuals who are playing games against other rational individuals.
Strategic interactions were considered with a limited number of actors, often with the “common knowledge of rationality” assumption that not only individuals are rational but also everyone believes that all others will act rationally.
What is important here is that the rational players in this approach are also assumed to anticipate the share and the behavior of the adaptive players correctly.
My rather modest objective here is to address what I consider to be the main issue: the compatibility of the observed data with game theory, and in parti cular with the notion of rationality.
One recent approach to bounded rationality in games is to relax the assumption that players have perfectly accurate beliefs about how the other players in the game are making their choices.
MARCO BATTAGLINI , REBECCA B. MORTON, THOMAS R. PALFREY
0.776
Game theorists have recently turned to bounded rationality with enthusiasm, either to address experimental anomalies, or to provide a dynamic for selection among multiple equilibria, or perhaps simply because game theory, having pushed rationality to the furthest extreme, was ripest for a revision.
In the previous sections attention has been confined to what might be called “prescriptive” game theory: the theory deduces what outcomes are consistent with it being common knowledge that players are rational in the CThe editors of the Scandinavian Journal of Econom Bayesian sense.
economylems economic players face and the possibility that the fully rational outcome is an unattainable theoretical construct appropriate only in unrealistically simplistic environments.References Aiyagari, S. Rao, and Mark Gertler.
Jack Favilukis , Sydney C. Ludvigson , Stijn Van Nieuwerburgh
0.773
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Decision theory and game theory may have failed to answer the normative question of what constitutes rational behaviour, but they have clarified some of the issues involved, and in the process obtained some understanding on the issue of what might constitute rational behaviour.
In this section we shall briefly consider the case that players are “rational” in the sense of Definition 1, and that this fact, together with players’ preferences over pure strategy outcomes, is common knowledge among the players.
Economics, Rationality, and Institutions So to understand the importance of noncooperative game theory, we need to appreciate why rational-choice analysis should be so important in economics.
We canvas some parameters of intellectual progress to assess how the rational choice and game theory elements of mainstream economics in the recent past measure up to these interpretations.
Some deep problems are raised when we try to adapt this theory so that it applies to the choices of rational individuals who are playing games against other rational individuals.
Game theorists have recently turned to bounded rationality with enthusiasm, either to address experimental anomalies, or to provide a dynamic for selection among multiple equilibria, or perhaps simply because game theory, having pushed rationality to the furthest extreme, was ripest for a revision.
In the previous sections attention has been confined to what might be called “prescriptive” game theory: the theory deduces what outcomes are consistent with it being common knowledge that players are rational in the CThe editors of the Scandinavian Journal of Econom Bayesian sense.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Kaushik Basu
0.762
In a cautious equilibrium, players do not necessarily know the rationality of opponents, but they view rationality as infinitely more likely than irrationality.
Strategic interactions were considered with a limited number of actors, often with the “common knowledge of rationality” assumption that not only individuals are rational but also everyone believes that all others will act rationally.
What is important here is that the rational players in this approach are also assumed to anticipate the share and the behavior of the adaptive players correctly.
My rather modest objective here is to address what I consider to be the main issue: the compatibility of the observed data with game theory, and in parti cular with the notion of rationality.
However, the question is not simply whether Nash equilibrium is consistent with the common knowledge of rationality, but rather what we can necessarily say about behavior given only the common knowled of rationality.
Our treatment unifies both “rational” and “boundedly rational” approaches, thus emphasizing that modeling the behavior of misspecified players does not constitute a large departure from the standard framework.
I consider Harstad and Selten’s examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory, commenting on the challenges that remain and the most promising ways forward.
One recent approach to bounded rationality in games is to relax the assumption that players have perfectly accurate beliefs about how the other players in the game are making their choices.
MARCO BATTAGLINI , REBECCA B. MORTON, THOMAS R. PALFREY
0.776
economylems economic players face and the possibility that the fully rational outcome is an unattainable theoretical construct appropriate only in unrealistically simplistic environments.References Aiyagari, S. Rao, and Mark Gertler.
Boundedly Rational versus Optimization-Based Models 515 relaxing customary neoclassical assumptions experience with closely analogous games, about preferences or judgment in specific, both theory and experimental results suggest evidence-based ways—the approach of most that players will usually learn to predict each modern behavioral economics—may be other’s strategy choices well enough that their more productive in many applications than beliefs about others’ strategy choices con would a comprehensive switch to boundedly verge to some Nash equilibrium in the game rational models whose connection to evi-currently being played.5 With such experi dence is less direct.
We illustrate, within our framework, that the interaction among heterogenous players indeed has a crucial effect on both the strategic choices of the rational players and that of the boundedly rational ones.
Among the 150 closest sentences to the cluster’s centroid, 58% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Some deep problems are raised when we try to adapt this theory so that it applies to the choices of rational individuals who are playing games against other rational individuals.
Introduction None would question the outstanding role that game theory in general, and Nash equilibrium in particular, have gained in the last twenty years or so not only in economics but in the whole realm of the social sciences: to be rational in any contemporary model involving even a minimal degree of social interaction consists in following Nash equilibrium behavior.
Nevertheless, a vector of subjectively rational strategies f can be in equilibrium if the play it induces coincides with the plays induced by the beliefs of each player i, as described by his belief vector, f ’.
This theory predicts Nash equilibria as the outcome if players behave rationally in a setting of decision problems which are interdependent in the above sense.
This theory is thought to apply not only to individual decision-making in ‘games against nature’, but also - by way of postulates about individuals’ rationality being common knowledge - to games in which rational individuals interact strategically.
Journal of Economic Perspectives-Volume 6, Number 4-Fall 1992-Pages 103-118 Rationality in Extensive-Form Games Philip J. Reny ince its inception, the Theory of Games has striven to describe a “rational” course of action for each of the participants involved in a situation I of strategic interaction, ranging from the merely amusing realm of parlor games to the truly frightening arena of war.
In other words, for almost all games each strategy profile which can be supported by beliefs satisfying the rationality requirement of sequential equilibrium can actually be supported by beliefs satisfying the stronger rationality requirement of perfect equilibrium.
My rather modest objective here is to address what I consider to be the main issue: the compatibility of the observed data with game theory, and in parti cular with the notion of rationality.
In the case in which the same set of players plays the same game repeatedly, other studies have identified the conditions under which any feasible and strictly individually rational outcome can be supported in I am grateful to David Levine for invaluable guidance and ideas.
The re moval of these common-knowledge requirements and the imposition of only rationality and knowledge of payoffs, however, result only in the prediction of the play of undominated strategies.9 Furthermore, common knowledge of rationality and payoffs alone result in the prediction of the play of strategies that survive iterated deletion.10 Of course, Nash equilibria survive such procedures and hence any selection problem remains.
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Some deep problems are raised when we try to adapt this theory so that it applies to the choices of rational individuals who are playing games against other rational individuals.
In this section we shall briefly consider the case that players are “rational” in the sense of Definition 1, and that this fact, together with players’ preferences over pure strategy outcomes, is common knowledge among the players.
Introduction None would question the outstanding role that game theory in general, and Nash equilibrium in particular, have gained in the last twenty years or so not only in economics but in the whole realm of the social sciences: to be rational in any contemporary model involving even a minimal degree of social interaction consists in following Nash equilibrium behavior.
Nevertheless, a vector of subjectively rational strategies f can be in equilibrium if the play it induces coincides with the plays induced by the beliefs of each player i, as described by his belief vector, f ’.
This theory predicts Nash equilibria as the outcome if players behave rationally in a setting of decision problems which are interdependent in the above sense.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Urs Schweizer
0.853
I presented a version of this paper at the First World Congress of the Game Theory Society and to my colleagues at the Center for Advanced Study in the Behavioral Sciences.
This theory is thought to apply not only to individual decision-making in ‘games against nature’, but also - by way of postulates about individuals’ rationality being common knowledge - to games in which rational individuals interact strategically.
Journal of Economic Perspectives-Volume 6, Number 4-Fall 1992-Pages 103-118 Rationality in Extensive-Form Games Philip J. Reny ince its inception, the Theory of Games has striven to describe a “rational” course of action for each of the participants involved in a situation I of strategic interaction, ranging from the merely amusing realm of parlor games to the truly frightening arena of war.
In other words, for almost all games each strategy profile which can be supported by beliefs satisfying the rationality requirement of sequential equilibrium can actually be supported by beliefs satisfying the stronger rationality requirement of perfect equilibrium.
My rather modest objective here is to address what I consider to be the main issue: the compatibility of the observed data with game theory, and in parti cular with the notion of rationality.
In the case in which the same set of players plays the same game repeatedly, other studies have identified the conditions under which any feasible and strictly individually rational outcome can be supported in I am grateful to David Levine for invaluable guidance and ideas.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Some deep problems are raised when we try to adapt this theory so that it applies to the choices of rational individuals who are playing games against other rational individuals.
In this section we shall briefly consider the case that players are “rational” in the sense of Definition 1, and that this fact, together with players’ preferences over pure strategy outcomes, is common knowledge among the players.
Nevertheless, a vector of subjectively rational strategies f can be in equilibrium if the play it induces coincides with the plays induced by the beliefs of each player i, as described by his belief vector, f ’.
This theory predicts Nash equilibria as the outcome if players behave rationally in a setting of decision problems which are interdependent in the above sense.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Urs Schweizer
0.853
This theory is thought to apply not only to individual decision-making in ‘games against nature’, but also - by way of postulates about individuals’ rationality being common knowledge - to games in which rational individuals interact strategically.
Journal of Economic Perspectives-Volume 6, Number 4-Fall 1992-Pages 103-118 Rationality in Extensive-Form Games Philip J. Reny ince its inception, the Theory of Games has striven to describe a “rational” course of action for each of the participants involved in a situation I of strategic interaction, ranging from the merely amusing realm of parlor games to the truly frightening arena of war.
In other words, for almost all games each strategy profile which can be supported by beliefs satisfying the rationality requirement of sequential equilibrium can actually be supported by beliefs satisfying the stronger rationality requirement of perfect equilibrium.
The work has taken on a dynamic, behavioralist flavor, with a stronger focus on the exploration of individual rationality than was present in the static, structuralist, Theory of Games.29 That research would unfold in this manner was beyond prediction in 1944, but the roots of these developments lie in the historical interlude described above.
Introduction None would question the outstanding role that game theory in general, and Nash equilibrium in particular, have gained in the last twenty years or so not only in economics but in the whole realm of the social sciences: to be rational in any contemporary model involving even a minimal degree of social interaction consists in following Nash equilibrium behavior.
I presented a version of this paper at the First World Congress of the Game Theory Society and to my colleagues at the Center for Advanced Study in the Behavioral Sciences.
My rather modest objective here is to address what I consider to be the main issue: the compatibility of the observed data with game theory, and in parti cular with the notion of rationality.
In the case in which the same set of players plays the same game repeatedly, other studies have identified the conditions under which any feasible and strictly individually rational outcome can be supported in I am grateful to David Levine for invaluable guidance and ideas.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Kai A. Konrad
0.842
The re moval of these common-knowledge requirements and the imposition of only rationality and knowledge of payoffs, however, result only in the prediction of the play of undominated strategies.9 Furthermore, common knowledge of rationality and payoffs alone result in the prediction of the play of strategies that survive iterated deletion.10 Of course, Nash equilibria survive such procedures and hence any selection problem remains.
INTRODUCTION In most games of economic interest a player’s optimal choice of play depends on the belief that she may hold about her opponents’ actions.
I comment on their examples of observed phenomena that appear to resist Nash equilibrium explanations, and the models of strategic behavior they propose as possible partial remedies.
Different equilibria will result depending on the informed player’s belief.4 For the simple analysis, throughout this paper, we assume that q - j ,5 As we assume no communication between players before making a choice, this would be a reasonable assumption.
One recent approach to bounded rationality in games is to relax the assumption that players have perfectly accurate beliefs about how the other players in the game are making their choices.
MARCO BATTAGLINI , REBECCA B. MORTON, THOMAS R. PALFREY
0.830
As described here, every player in this game has limited rationality, as each systematically underestimates the types of its competitors, though the extent of this underestimation varies.
Erickson explores this explosion of interest in the Nash equilibrium and suggests that “the pro liferation of’game theories’ has gone hand in hand with the further disintegration of any straightforward conception of ‘rationality’ and the problematization of game theory’s rationality postulates more generally.
The cluster gathers 2573 sentences from our corpus. It represents 1.59% of all the sentences selected over the whole period.
The community exists from 1990 to 2019.
The most recurring authors are Geoffrey Brennan (43 sentences), Youzong Xu (30 sentences), Gary J. Miller (24 sentences), Alberto Alesina (22 sentences), Bernard Grofman (22 sentences), Daniel Diermeier (22 sentences), Roger D. Congleton (22 sentences), Bryan Caplan (21 sentences), Dwight R. Lee (21 sentences), John Duggan (19 sentences).
The most recurring journals are Public Choice (972 sentences), The American Economic Review (130 sentences), Journal of Political Economy (84 sentences), The Review of Economic Studies (77 sentences), The Economic Journal (76 sentences).
Top TF-IDF terms describing the community
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TF-IDF
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rational_choice
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votes
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partisan
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Top TF-IDF terms describing the community for each time window
Top terms 1990-1999
Token
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voters
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Top terms 2000-2009
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voters
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voter
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public_choice
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Top terms 2010-2019
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TF-IDF
voters
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voting
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electorate
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
It is one thing to assume that individuals act rationally in the sense that the term is used in expected utility theory when they go to the supermarket or participate in financial markets in the United States; it is quite another thing to make that assumption when individuals confront the complicated choices involved in making decisions about the polity and the economy that shape institutional change.
If irrationality is treated as a good like any other, then basic price theory implies that deviations from rational expectations are especially likely to surface in political games.
Given the general acceptance among behavioral economists that the irrationalities in market decisions justify government attempts to improve the rationality of those decisions, it would seem reasonable to compare the distortions created in the market process by cognitive biases with the distortions those biases create in the political process.
In this model, it is assumed that individuals are “bounded rational” in the sense that they do not take account of the indirect effect of their lobbying effort on the absolute amount of the total “pie”, or that this indirect effect is negligible.
In relatively nonexperimental fields such as political science, the opposition to the use of the “rational choice” approach is based in part on doubts about the extreme rationality assumptions that underlie virtually all “formal modeling” of political behavior.’
Simon P. Anderson, Jacob K. Goeree , Charles A. Holt
0.750
Our analysis suggests that expectations of inflation are formed in a rational manner and that voters can therefore be expected to perceive such consequences.
Springer Science -f Business Media B.V. 2007 Abstract Economists assume that individuals think about the economy like economists, which is especially important in all rational expectations and economic voting models.
It analyzes political behavior and institutions in light of the economic assumption that humans are selfinterested rational actors who respond to incentives.
In general, the presence of rational expectations prevents systematic economic manipulation or political profit by the incumbent because this sort of exploitation would be « seen through » by voters and might cost rather than bring in votes.
The concept of rationality that is employed fails to recognize that-particularly from an economic point of view-political actions only deserve the term “rational” when they include in their search for resourcesaving solutions the difficulty of achieving a consensus.
That is, political agents or groups are assumed to be rational and forward-looking, with expectations that are consistent with the properties of the underlying model.
If the unrealistic assumption that voters can accurately predict the number of beneficiaries is replaced by an assumption of bounded rationality, more interesting dynamic processes may emerge.
Although in democracies there is some degree of political competition, it seems likely that in social choices the intermediation of the market is less relevant, whereas in many cases involving behavioral economics, markets might plausibly arbitrage away, or exploit, irrationalities.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 1990-1999
Sentence
Title
Year
Journal
Authors
Centroid Similarity
It is one thing to assume that individuals act rationally in the sense that the term is used in expected utility theory when they go to the supermarket or participate in financial markets in the United States; it is quite another thing to make that assumption when individuals confront the complicated choices involved in making decisions about the polity and the economy that shape institutional change.
In this model, it is assumed that individuals are “bounded rational” in the sense that they do not take account of the indirect effect of their lobbying effort on the absolute amount of the total “pie”, or that this indirect effect is negligible.
Our analysis suggests that expectations of inflation are formed in a rational manner and that voters can therefore be expected to perceive such consequences.
In general, the presence of rational expectations prevents systematic economic manipulation or political profit by the incumbent because this sort of exploitation would be « seen through » by voters and might cost rather than bring in votes.
The concept of rationality that is employed fails to recognize that-particularly from an economic point of view-political actions only deserve the term “rational” when they include in their search for resourcesaving solutions the difficulty of achieving a consensus.
That is, political agents or groups are assumed to be rational and forward-looking, with expectations that are consistent with the properties of the underlying model.
If the unrealistic assumption that voters can accurately predict the number of beneficiaries is replaced by an assumption of bounded rationality, more interesting dynamic processes may emerge.
If irrationality is treated as a good like any other, then basic price theory implies that deviations from rational expectations are especially likely to surface in political games.
In relatively nonexperimental fields such as political science, the opposition to the use of the “rational choice” approach is based in part on doubts about the extreme rationality assumptions that underlie virtually all “formal modeling” of political behavior.’
Springer Science -f Business Media B.V. 2007 Abstract Economists assume that individuals think about the economy like economists, which is especially important in all rational expectations and economic voting models.
I. Assumptions about Political Actors Perhaps the most fundamental proposition on the survey states that “Individuals are rational utili ty-maximizers.”
Public choice shares the rationality assumption with rational expectations, so it is hard to understand why they would think citizens are continually duped on macroeconomic issues that affect their well-being.
It follows the established practice of economics of assuming rational expectations, but that assumption is much more questionable in the case of political economy.
Interestingly, public choice political scientists are even more willing than economists to view this behavior as rational, even though they aren’t as convinced of the gen eral rational utility maximizing behavior of peo ple.
Given the general acceptance among behavioral economists that the irrationalities in market decisions justify government attempts to improve the rationality of those decisions, it would seem reasonable to compare the distortions created in the market process by cognitive biases with the distortions those biases create in the political process.
It analyzes political behavior and institutions in light of the economic assumption that humans are selfinterested rational actors who respond to incentives.
Although in democracies there is some degree of political competition, it seems likely that in social choices the intermediation of the market is less relevant, whereas in many cases involving behavioral economics, markets might plausibly arbitrage away, or exploit, irrationalities.
As a result, voters will rationally decide to ignore the additional signals and attribute any difference between them and their rational expectation to the error term.16 This illustrates an important point.
In other words, she votes for the alternative that maximizes her expected utility conditional on both her private information and the information inferred from pivotality, that is, the hypothetical event that she is decisive.3 The assumption of the coexistence of both rational and sincere voters has strong experimental support, and multiple interpretations of sincere voters’ boundedly rational behavior have been advanced.
1 The concepts of “rational irrationality” and retrospective voting - a review Bryan Caplan’s book “The myth of the rational voter” was among the first to show that there is a systematic bias in voters’ beliefs about economic policies.
Taken together, the complexity and queasiness of hyper-rational, pure-QV voting, along with the miniscule expenditure that such voting involves, might push nearly everyone to View II behavior—and, as we explained, even if only a modest fraction behaves according to View II, the preferences of remaining QV’ers are drowned out.
Rationalist1 accounts of political action fare slightly better than economistic approaches by introducing both institutions and actors as intervening variables.
A rational voter correctly recognizes whether her two signals are independent or correlated; a boundedly rational voter always believes that his two signals are independent.
This is a conceptual point that goes beyond the results of this paper on the comparison of electoral systems: even though sincere voting strategies may not be rational, the equilibrium voting actions may well be sincere when candidates are endogenous.
We outline how a rational voter model is consistent with public choice the ory and other aspects of economic reasoning and describe a small group of variables that has been shown to consis tently explain voting behavior in presidential elections.
To analyze such settings, political economy models of voting have traditionally assumed a rational electorate that updates information according to Bayes’ Rule, votes strategically, etc.
Finally, we offer a conclusion about the limits of economic rationalism in voting behavior and sug gest that some elections—such as the 1992 election, and potentially the 2004 election—are not fundamentally about economics.
Public choice as political theory Throughout this essay I shall refer to all works that assume rational, self-interested behavior on the part of all political actors as part of the public choice literature regardless of how formal the analysis is in terms of mathematical modeling, or whether it appears in an economics, political science, sociology or some other discipline’s journal.
In his model, voters are rational and costs of voting, the information set of voters and the institutional framework are presented in a more general way than in previous works.
Franklin G. Mixon Jr., M. Troy Gibson , Kamal P. Upadhyaya
0.824
If the unrealistic assumption that voters can accurately predict the number of beneficiaries is replaced by an assumption of bounded rationality, more interesting dynamic processes may emerge.
This characterization of voter decisionmaking is widely used in the modern political economy literature, but works less well than one might have expected.
Starting with these assumptions, Coate and Morris show that in the equilibrium, voters are able to make conclusions upon the behavior and the aims of politicians4.
This is a conceptual point that goes beyond the results of this paper on the comparison of electoral systems: even though sincere voting strategies may not be rational, the equilibrium voting actions may well be sincere when candidates are endogenous.
Despite the undoubted success of this research programme it has long been realized, however, that it is difficult to explain very basic political decisions like to vote or not to vote with the help of the standard approach.2 This holds even if it is admitted that utility functions can be interdependent and that they include non-material variables.
Concluding Remarks Whether and, if so, to what extent, individuals cast strategic ballots is one of the most important questions at the intersection of economics and political science.
We outline how a rational voter model is consistent with public choice the ory and other aspects of economic reasoning and describe a small group of variables that has been shown to consis tently explain voting behavior in presidential elections.
To analyze such settings, political economy models of voting have traditionally assumed a rational electorate that updates information according to Bayes’ Rule, votes strategically, etc.
10It is perhaps worth noting that the expressive voting thesis suggests why political preferences and market preferences are likely to diverge?but holds that individuals’ political preferences are no less ‘rational’ in the sense that they evince the properties of continuity, transitivity and convexity.
Finally, we offer a conclusion about the limits of economic rationalism in voting behavior and sug gest that some elections—such as the 1992 election, and potentially the 2004 election—are not fundamentally about economics.
Economic and political choices are interdependent in our theory: expected electoral results influence economic choices, and economic choices in turn influence voting behaviour.
Starting with these assumptions, Coate and Morris show that in the equilibrium, voters are able to make conclusions upon the behavior and the aims of politicians4.
Despite the undoubted success of this research programme it has long been realized, however, that it is difficult to explain very basic political decisions like to vote or not to vote with the help of the standard approach.2 This holds even if it is admitted that utility functions can be interdependent and that they include non-material variables.
Public choice as political theory Throughout this essay I shall refer to all works that assume rational, self-interested behavior on the part of all political actors as part of the public choice literature regardless of how formal the analysis is in terms of mathematical modeling, or whether it appears in an economics, political science, sociology or some other discipline’s journal.
A closer presentation of the puzzle Public Choice assumes that political behaviour can be analyzed by utilizing the “economic man”-assumption underlying neoclassical economic theory.
If the unrealistic assumption that voters can accurately predict the number of beneficiaries is replaced by an assumption of bounded rationality, more interesting dynamic processes may emerge.
Charles K. Rowley , Friedrich Schneider, Robert D. Tollison
0.821
The rational voter theory as applied in the literature on political support functions1” somehow neglects the low probability argument for not voting and claims that people decide in public elections as in economic situations.
A previous version of this paper was presented at the Weingart Conference on Formal Models of Voting, California Institute of Technology, 22-23 March 1985. that a rational calculus of self-interest motivates voters’ choices.
It is one thing to assume that individuals act rationally in the sense that the term is used in expected utility theory when they go to the supermarket or participate in financial markets in the United States; it is quite another thing to make that assumption when individuals confront the complicated choices involved in making decisions about the polity and the economy that shape institutional change.
This characterization of voter decisionmaking is widely used in the modern political economy literature, but works less well than one might have expected.
This is a conceptual point that goes beyond the results of this paper on the comparison of electoral systems: even though sincere voting strategies may not be rational, the equilibrium voting actions may well be sincere when candidates are endogenous.
We outline how a rational voter model is consistent with public choice the ory and other aspects of economic reasoning and describe a small group of variables that has been shown to consis tently explain voting behavior in presidential elections.
10It is perhaps worth noting that the expressive voting thesis suggests why political preferences and market preferences are likely to diverge?but holds that individuals’ political preferences are no less ‘rational’ in the sense that they evince the properties of continuity, transitivity and convexity.
Finally, we offer a conclusion about the limits of economic rationalism in voting behavior and sug gest that some elections—such as the 1992 election, and potentially the 2004 election—are not fundamentally about economics.
This paper argues that this is not necessarily the best way to interpret the problem and attempts to provide an alternative unified political-economic model that is more consistent with standard assumptions about voting.
In his model, voters are rational and costs of voting, the information set of voters and the institutional framework are presented in a more general way than in previous works.
Concluding Remarks Whether and, if so, to what extent, individuals cast strategic ballots is one of the most important questions at the intersection of economics and political science.
To analyze such settings, political economy models of voting have traditionally assumed a rational electorate that updates information according to Bayes’ Rule, votes strategically, etc.
Economic and political choices are interdependent in our theory: expected electoral results influence economic choices, and economic choices in turn influence voting behaviour.
Almost all introductory textbooks now include a discussion of public choice as the application of economic models in explaining political decision-making in the context of both elections and government policy making; and in some quarters public choice theory is seen as essentially standard neoclassical economics extended to the domain of pol itics.
4D this prediction sits awkwardly with the stylized fact that there is at least some sort of economic vote, and more directly with the fact that some voters on some dimensions at least are very well informed.10 Consequently later theoretical work within the field has softened.
First, while existing work focuses on sincere voting, we consider fully rational voters who vote strategically.5 Second, we introduce uncertainty regarding others’ preferences.
To analyze the consequence of policy deviation on the campaign contribution and voting, we need to specify a rational belief on the winning policy between a1 and a2.
The cluster gathers 5133 sentences from our corpus. It represents 3.17% of all the sentences selected over the whole period.
The community exists from 2000 to 2019.
The most recurring authors are Ernst Fehr (66 sentences), Matthew Rabin (55 sentences), John A. List (52 sentences), George Loewenstein (46 sentences), Botond Kőszegi (45 sentences), Robert Sugden (44 sentences), B. Douglas Bernheim (41 sentences), Drew Fudenberg (40 sentences), Gerd Gigerenzer (37 sentences), Jean-Robert Tyran (34 sentences).
The most recurring journals are The American Economic Review (618 sentences), The Economic Journal (248 sentences), Journal of Economic Issues (234 sentences), Cambridge Journal of Economics (231 sentences), Journal of Economic Literature (191 sentences).
Top TF-IDF terms describing the community
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behavioral
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rational_inattention
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cognitive
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inattention
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economic_psychology
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behavioural_economics
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experimental_economics
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behavioural
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payoffs
0.0010516
behavioral_economists
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0.0009372
optimal_plans
0.0009328
optimal
0.0009273
hyperbolic_discounting
0.0009079
biases
0.0008774
models
0.0007576
experiments
0.0007440
Top TF-IDF terms describing the community for each time window
Top terms 2000-2009
Token
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behavioral_economics
0.0040794
behavioral
0.0031940
economic_psychology
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neuroeconomics
0.0024143
cognitive
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optimal_plans
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experimental_economics
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payoffs
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behavioural_economics
0.0013781
neuroeconomic
0.0013451
rational_inattention
0.0012632
psychology
0.0012588
inattention
0.0010436
Top terms 2010-2019
Token
TF-IDF
behavioral_economics
0.0077717
rational_inattention
0.0056477
inattention
0.0053707
behavioral
0.0052457
cognitive
0.0030686
economic_psychology
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neuroeconomics
0.0026575
behavioural_economics
0.0026004
behavioural
0.0018276
experimental
0.0016997
inattentive
0.0015155
experimental_economics
0.0014862
behavioral_economists
0.0014242
hyperbolic
0.0013802
hyperbolic_discounting
0.0013407
Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
INTRODUCTION When individuals have only limited rationality, it is reasonable for them to evaluate actions according to a historical comparison of their corresponding payoffs, and to adopt actions that have performed well in the past.
At the level of psychology, the explanatory framework of main stream economics is built upon the rational choice model, according to which the behavior of economic actors can best be understood as the consequence of rational decision making.14 As Cutler et al.
While we trust this realization will eventually dampen economists’ enthusiasm for finding rational-choice explanations for everything, we suspect that in the short run this principle will continue to entice economists to react to new psychologically motivated theories of mistakes by formulating new rational-choice models that replicate the behavioral predictions.
Both modern experimental economics and game theory have revealed the limitations of all-purpose, context-independent rationality and pointed to the institutional influences on rationality itself.
Recent work in behavioral economics and experimental economics pushes the boundaries of economics in a different direction: instead of basing explanations on a hypothesis of rational choice, it has often questioned whether choices are rational or consis tent.
Mimako Kobayashi, Klaus Moeltner , Kimberly Rollins
0.765
We broadly interpret a psychological state as any pay-off relevant endogenous preference parameter that is assumed to be normatively irrelevant in a conventional account of rationality.
Yet very little existing work, even that on bounded rational ity or in economic psychology, recognizes that decision-makers may be forced to adjust their models to accommodate unpredicted events that have actually occurred.
It asserts that emotional reactions to situations involving uncertainty or futurity often differ sharply from cognitive assessments of those situations and that when such differences occur, it is often the emotional reactions that determine behavior.16 Rational optimizing economic theory assumes that people calculate their rational advantage and then act consistently with that.
First, compared to conventional economic theory, BE emphasizes the notion that people have cognitive lim itations, and that, at least partly for this reason, they sometimes make seemingly irrational decisions.
Peggy J. Liu , Jessica Wisdom , Christina A. Roberto, Linda J. Liu , Peter A. Ubel
0.759
Thus, the possibility of irrationality as a normal functioning of the mind introduces a whole new dimension to the role of instincts in economic behavior.
This paper’s narrative can thus be seen as the story of the progressive acknowledgement of this basic fact: instead of trying to fill the gap in utility theory through a more empirical approach to the functioning of the human mind, neoclassical economists pursued a route that would eventually lead them to formulate a purely formal notion of rationality as consistency, devoid of any reference to psychic features.
Cahiers d’économie politique / Papers in Political Economy
Nicola Giocoli
0.757
Rational inattention is a useful way to describe more sub jective evaluations, such as the probability of crisis, an optimal price, or future productivity.
Christian Hellwig, Sebastian Kohls , Laura Veldkamp
0.756
The main argument of the paper is that, despite the seeming discrepancy between actual behavior and theoretical predictions, rationality, in the sense of “a rational person prefers receiving any positive amount of money to receiving nothing”, is present in the data.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 2000-2009
Sentence
Title
Year
Journal
Authors
Centroid Similarity
INTRODUCTION When individuals have only limited rationality, it is reasonable for them to evaluate actions according to a historical comparison of their corresponding payoffs, and to adopt actions that have performed well in the past.
While we trust this realization will eventually dampen economists’ enthusiasm for finding rational-choice explanations for everything, we suspect that in the short run this principle will continue to entice economists to react to new psychologically motivated theories of mistakes by formulating new rational-choice models that replicate the behavioral predictions.
Both modern experimental economics and game theory have revealed the limitations of all-purpose, context-independent rationality and pointed to the institutional influences on rationality itself.
Recent work in behavioral economics and experimental economics pushes the boundaries of economics in a different direction: instead of basing explanations on a hypothesis of rational choice, it has often questioned whether choices are rational or consis tent.
Yet very little existing work, even that on bounded rational ity or in economic psychology, recognizes that decision-makers may be forced to adjust their models to accommodate unpredicted events that have actually occurred.
It asserts that emotional reactions to situations involving uncertainty or futurity often differ sharply from cognitive assessments of those situations and that when such differences occur, it is often the emotional reactions that determine behavior.16 Rational optimizing economic theory assumes that people calculate their rational advantage and then act consistently with that.
First, compared to conventional economic theory, BE emphasizes the notion that people have cognitive lim itations, and that, at least partly for this reason, they sometimes make seemingly irrational decisions.
Thus, the possibility of irrationality as a normal functioning of the mind introduces a whole new dimension to the role of instincts in economic behavior.
This paper’s narrative can thus be seen as the story of the progressive acknowledgement of this basic fact: instead of trying to fill the gap in utility theory through a more empirical approach to the functioning of the human mind, neoclassical economists pursued a route that would eventually lead them to formulate a purely formal notion of rationality as consistency, devoid of any reference to psychic features.
Cahiers d’économie politique / Papers in Political Economy
Nicola Giocoli
0.757
The main argument of the paper is that, despite the seeming discrepancy between actual behavior and theoretical predictions, rationality, in the sense of “a rational person prefers receiving any positive amount of money to receiving nothing”, is present in the data.
At the level of psychology, the explanatory framework of main stream economics is built upon the rational choice model, according to which the behavior of economic actors can best be understood as the consequence of rational decision making.14 As Cutler et al.
Mimako Kobayashi, Klaus Moeltner , Kimberly Rollins
0.765
We broadly interpret a psychological state as any pay-off relevant endogenous preference parameter that is assumed to be normatively irrelevant in a conventional account of rationality.
Peggy J. Liu , Jessica Wisdom , Christina A. Roberto, Linda J. Liu , Peter A. Ubel
0.759
Rational inattention is a useful way to describe more sub jective evaluations, such as the probability of crisis, an optimal price, or future productivity.
As we shall see, it is not just the limits of rationality that drive a wedge between the two representations of individual decision making, but the part played by interventions in economics from psychology.
The previous equilibrium-based reasoning implicitly presumes subjects to be risk neutral and fully rational, perfectly able to coordinate on any proposed equilibrium when communicating, and motivated only by monetary payoffs.
Maria Bigoni , Sven-Olof Fridolfsson, Chloé Le Coq , Giancarlo Spagnolo
0.752
Closest sentences from the cluster’s centroid
Among the 100 closest sentences to the cluster’s centroid, 22% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Recent work in behavioral economics and experimental economics pushes the boundaries of economics in a different direction: instead of basing explanations on a hypothesis of rational choice, it has often questioned whether choices are rational or consis tent.
Jahrbuch für Wirtschaftswissenschaften / Review of Economics
Benjamin Addai Antwi-Boasiako
0.847
Behavioral economics, experimental economics, and, most recently, neuro-economics have shown that optimizing rationality is not always the dominant factor in what we do, even in narrow economic decisions.
Building a New Framework One of the reasons for the growth of behavioral economics over the past few decades is the accumulation of empirical facts that are hard to reconcile with the rational paradigm.
INTRODUCTION The growing field of Behavioral Economics has frequently identified differences between the canonical model of rational decision making and actual human behavior.
Such assorted biases, while anomalies to rational economic man, have been shown to exist again and again in experimental economics and in the field of economics and psychology.
Increasingly, economists have come to accept that decision-making behaviour, as observed in laboratory environments, diverges systematically from the predictions of standard theory, and that those divergences are in accord with the predictions of psychologically-based theories.16 Any credible defence of the received theory of rational choice must take account of these facts.
As we shall see, it is not just the limits of rationality that drive a wedge between the two representations of individual decision making, but the part played by interventions in economics from psychology.
Keywords Behavioral economics Confirmation bias Endowment effects Loss aversion Shortsightedness Identifiably-victim effect Underweighting opportunity costs & J. R. Clark J-clark@utc.edu Dwight R. Lee dwightl@uga.edu 1 O’Neil Center for Global Markets and Freedom, Cox School of Business, Southern Methodist University, 6212 Bishop Blvd., Dallas, TX 75275, USA 2 The University of Tennessee at Chattanooga, 313 Fletcher Hall, Department 6106, 615 McCallie Avenue, Chattanooga, TN 37403, USA Introduction Behavioral economists want to increase the rationality of economic and political decisions.
Adaptive Behavior and Economic Theory ?, In Rational Choice: The Contrast between Economics and Psychology, R. Hogarth and M. Reder, editors, Chicago: University of Chicago Press, pp.
At the level of psychology, the explanatory framework of main stream economics is built upon the rational choice model, according to which the behavior of economic actors can best be understood as the consequence of rational decision making.14 As Cutler et al.
Recent work in behavioral economics and experimental economics pushes the boundaries of economics in a different direction: instead of basing explanations on a hypothesis of rational choice, it has often questioned whether choices are rational or consis tent.
INTRODUCTION In recent years, more and more economists have found both empirical and experimental evidence of several psychological behaviors that are well beyond the analysis of classical economics.
Behavioral economics, experimental economics, and, most recently, neuro-economics have shown that optimizing rationality is not always the dominant factor in what we do, even in narrow economic decisions.
712-721 Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics WOLFGANG PESENDORFER* Advances in Behavioral Economics contains influential second-generation contributions to behavioral economics.
Finally, we hope that this study serves as a valid reply to two frequent critiques of behavioral economics: the reliance on laboratory studies using modest stakes and the ex post explanation of anomalous facts, drawing on what is alleged to be a limitless store of potential behavioral explanations.
Building a New Framework One of the reasons for the growth of behavioral economics over the past few decades is the accumulation of empirical facts that are hard to reconcile with the rational paradigm.
Lastly, from the perspective of the recent behavioral economics literature, we find a significant and quantitatively important type of psychological effect not previously documented.
INTRODUCTION The growing field of Behavioral Economics has frequently identified differences between the canonical model of rational decision making and actual human behavior.
In the second section, we account for recent contributions of experimental economics and neuroeconomics that prove particularly suited to understanding the psychological reality of this phenomenon at the level of individual agents.
Recent work in behavioral economics and experimental economics pushes the boundaries of economics in a different direction: instead of basing explanations on a hypothesis of rational choice, it has often questioned whether choices are rational or consis tent.
Behavioral economics, experimental economics, and, most recently, neuro-economics have shown that optimizing rationality is not always the dominant factor in what we do, even in narrow economic decisions.
712-721 Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics WOLFGANG PESENDORFER* Advances in Behavioral Economics contains influential second-generation contributions to behavioral economics.
Finally, we hope that this study serves as a valid reply to two frequent critiques of behavioral economics: the reliance on laboratory studies using modest stakes and the ex post explanation of anomalous facts, drawing on what is alleged to be a limitless store of potential behavioral explanations.
Such assorted biases, while anomalies to rational economic man, have been shown to exist again and again in experimental economics and in the field of economics and psychology.
INTRODUCTION In recent years, more and more economists have found both empirical and experimental evidence of several psychological behaviors that are well beyond the analysis of classical economics.
Jahrbuch für Wirtschaftswissenschaften / Review of Economics
Benjamin Addai Antwi-Boasiako
0.847
Building a New Framework One of the reasons for the growth of behavioral economics over the past few decades is the accumulation of empirical facts that are hard to reconcile with the rational paradigm.
Lastly, from the perspective of the recent behavioral economics literature, we find a significant and quantitatively important type of psychological effect not previously documented.
INTRODUCTION The growing field of Behavioral Economics has frequently identified differences between the canonical model of rational decision making and actual human behavior.
In the second section, we account for recent contributions of experimental economics and neuroeconomics that prove particularly suited to understanding the psychological reality of this phenomenon at the level of individual agents.
We are grateful for the insightful comments of many colleagues, including Nageeb Ali, Michèlle Cohen, Soo Hong Chew, Vince Crawford, Tore Ellingsen, Guillaume Fréchette, Glenn Harrison, David Laibson, Mark Machina, William Neilson, Muriel Niederle, Matthew Rabin, Joel Sobel, Lise Vesterlund, participants at the Economics and Psychology lecture series at Paris 1, the Psychology and Economics segment at Stanford Institute of Theoretical Economics 2009, the Amsterdam Workshop on Behavioral and Experimental Economics 2009, the Harvard Experimental and Behavioral Economics Seminar, and members of the graduate experimental economics courses at Stanford University and the University of Pittsburgh.
The cluster gathers 2644 sentences from our corpus. It represents 1.63% of all the sentences selected over the whole period.
The community exists from 2000 to 2019.
The most recurring authors are Olivier Coibion (35 sentences), Yuriy Gorodnichenko (34 sentences), George-Marios Angeletos (33 sentences), Roger D. Congleton (32 sentences), Stephen Morris (32 sentences), Tarek A. Hassan (25 sentences), Thomas M. Mertens (25 sentences), Hyun Song Shin (22 sentences), Alessandro Pavan (21 sentences), Dirk Bergemann (19 sentences).
The most recurring journals are The American Economic Review (281 sentences), Economic Theory (218 sentences), The Review of Economic Studies (204 sentences), Econometrica (137 sentences), The Journal of Finance (118 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
Rational expectations theory argues that economic agents behave rationally in light of the information that is available to them, and blames problems in the operation of markets on information asymmetries or inadequate information rather than on flaws in the market mechanism itself.
14, we extend our environment to allow rational households to obtain an informational advantage over near-rational households by observing the error they would have made had they acted near-rationally.
While the choices of rational agents are only constrained by their lack of information, boundedly rational decision makers are in addition restricted in their ability to process the available information.
Using the game-theoretical concept of rationalizability, it has been shown, that rational expectations equilibria with private information can be derived from the two fundamental principles of individual rationality and common knowledge.
It may be argued that rational expectations models assume greater information on the part of decision makers than the core neoclassical models, insofar as agents were not previously assumed to know anything globally about economics or markets.
Given its importance, numerous studies recently have examined its empirical validity and have discovered some evidence of bounded rationality or information inefficiency.
Our bounded rationality as economic theorists is far more constraining on economic science, than the bounded rationality of privately informed agents is constraining on their ability to maximize the gains from exchange.
In any case, there is no reason in the economic theory of decision-making under partial ignorance to think that rational agents must follow insufficient reason, and so we reject the generality of Singer et al.
Treatments: ‘Bounded Rationality’ We consider three different treatments that differ in the way the information is provided, and the time pressure put on the players.
3.4 The bias and rationality The bias described in the present paper arises in a setting where all individuals are perfectly rational utility maximizers who process information according to the Bayesian rule.
First, we acknowledge that full rational expectations is unlikely to hold in a strict sense but are swayed by the economic principle that people use information in a fully efficient manner.
This assumption stems from the need to preserve the theoretical characteristics of rational choices and market efficiency which underestimate the risks and relevance of incomplete information, the complexity of the context, and the subjectivity of a person’s ability to perceive the outside world and to consequently process the information.
Accommodating information revelations on the equilibrium path complicates the definitions of the individual rationality and incentive compatibility requirements.
The Canadian Journal of Economics / Revue canadienne d’Economique
Gorkem Celik , Michael Peters
0.761
8Maintaining common knowledge of rationality but otherwise leaving beliefs unrestricted yields notions like rationalizability, which implies some restrictions on behavior in first-price auctions or common-value second-price auctions, and duplicates equilibrium in independent- private-value second-price auctions.
Top sentence (in general) of the cluster’s centroid for each time window
Top sentences 2000-2009
Sentence
Title
Year
Journal
Authors
Centroid Similarity
Rational expectations theory argues that economic agents behave rationally in light of the information that is available to them, and blames problems in the operation of markets on information asymmetries or inadequate information rather than on flaws in the market mechanism itself.
While the choices of rational agents are only constrained by their lack of information, boundedly rational decision makers are in addition restricted in their ability to process the available information.
Using the game-theoretical concept of rationalizability, it has been shown, that rational expectations equilibria with private information can be derived from the two fundamental principles of individual rationality and common knowledge.
It may be argued that rational expectations models assume greater information on the part of decision makers than the core neoclassical models, insofar as agents were not previously assumed to know anything globally about economics or markets.
Given its importance, numerous studies recently have examined its empirical validity and have discovered some evidence of bounded rationality or information inefficiency.
Our bounded rationality as economic theorists is far more constraining on economic science, than the bounded rationality of privately informed agents is constraining on their ability to maximize the gains from exchange.
In any case, there is no reason in the economic theory of decision-making under partial ignorance to think that rational agents must follow insufficient reason, and so we reject the generality of Singer et al.
14, we extend our environment to allow rational households to obtain an informational advantage over near-rational households by observing the error they would have made had they acted near-rationally.
This assumption stems from the need to preserve the theoretical characteristics of rational choices and market efficiency which underestimate the risks and relevance of incomplete information, the complexity of the context, and the subjectivity of a person’s ability to perceive the outside world and to consequently process the information.
Accommodating information revelations on the equilibrium path complicates the definitions of the individual rationality and incentive compatibility requirements.
The Canadian Journal of Economics / Revue canadienne d’Economique
Gorkem Celik , Michael Peters
0.761
If this view is correct, or even partially correct, it presents a serious challenge not just to full-information models of rational choice, but even to the “rational ignorance” view.
Theoretical models of near rationality assume that economic agents collect and process information better when it is important, which, in the context of inflation expectations, means periods of high and volatile inflation.
Olivier Armantier , Scott Nelson , Giorgio Topa , Wilbert van der Klaauw, Basit Zafar
0.746
Indeed, those who believe that speculation is to blame for com modity price volatility are unlikely to agree that agents are fully rational and equally endowed with information, which are two key assumptions in this article.
Compared with us, these authors use a weaker concept of ex post individual rationality that only requires ex post individual rationality conditional on the information disclosed.
It is sometimes argued in favour of rational expectations that there is something wrong with an account of economic policy in which the authorities can consistently exploit an informational advantage over the public without the public ever catching on, and where what the model predicts is consistently at variance with what it assumes that the public expects.
IN ECONOMIC AND FINANCIAL ENVIRONMENTS in which decision makers have imperfect information about the true state of the world, it can be rational to ignore one’s own private information and make decisions based upon what are believed to be more informative public signals.
Therefore, if the theory of asymmetric information alters the assumption of fully informed individuals or if experimental and psychological economists relax the assumption of perfect rationality they generate new fields for the application of neoclassical theory and methods.
Sec ond, even in the special cases where more informationally efficient equilibria are known to exist,1 the possibility of rational herding presents a cautionary note on the scope for successful information aggregation.
This assumption stems from the need to preserve the theoretical characteristics of rational choices and market efficiency which underestimate the risks and relevance of incomplete information, the complexity of the context, and the subjectivity of a person’s ability to perceive the outside world and to consequently process the information.
Accommodating information revelations on the equilibrium path complicates the definitions of the individual rationality and incentive compatibility requirements.
The Canadian Journal of Economics / Revue canadienne d’Economique
Gorkem Celik , Michael Peters
0.806
The literature has used various types of information choices, such as rational inattention, inattentiveness, information markets, or costly precision.1 Using a unified framework, we compare these different information choice technologies and explain why some generate increasing returns and others, par ticularly those where agents choose how much public information to observe, generate multiple equilibria.
Christian Hellwig, Sebastian Kohls , Laura Veldkamp
0.803
The expectations of better informed agents may approach rational expectations, whereas other participants may not have sufficient skills to gather and incorporate information in their expectations.
Olivier Armantier , Scott Nelson , Giorgio Topa , Wilbert van der Klaauw, Basit Zafar
0.801
Noting that the trading strategies of the rational agents, in the equilibrium under consideration, are independent of b , we have that 31 Notice that we abstract from the cost of information, which does not affect any of the results that follow.
Diego García , Francesco Sangiorgi, Branko Urošević
0.800
The partially revealing rational expectations equilibrium When the wealth share of the informed agents is small, we should expect prices not to reveal much of the informed agents’ information.
A Unique Information-Choice Equilibrium.— If other agents acquire more information, they put more weight on the more precise private sig nals when forming their actions.
Christian Hellwig, Sebastian Kohls , Laura Veldkamp
0.828
Assumption 1 is maintained throughout the remainder of the paper and is necessary to ensure that agents choose to acquire a nonzero quantity of information.
Our focus here is not on the amount of information communicated, but on the quality of the decision made, and we demonstrate that it is possible to improve the quality of the decision without increasing the informativeness of the equilibrium, in the sense of Fisher and Stocken.
IN ECONOMIC AND FINANCIAL ENVIRONMENTS in which decision makers have imperfect information about the true state of the world, it can be rational to ignore one’s own private information and make decisions based upon what are believed to be more informative public signals.
Equilibrium Use of Information The equilibrium use of information depends crucially on the private value that agents assign to aligning their choices with those of others.
In all these settings, the economic environment is characterized by the presence of underlying uncertainty that is common to everyone, and eliminating such uncertainty can be prohibitively costly, or simply impossible; agents thus learn about such unobserved payoff-relevant states simultaneously as decisions are being made, and the incomplete information they face need not ever fully disappear.
Therefore, if the theory of asymmetric information alters the assumption of fully informed individuals or if experimental and psychological economists relax the assumption of perfect rationality they generate new fields for the application of neoclassical theory and methods.
Sec ond, even in the special cases where more informationally efficient equilibria are known to exist,1 the possibility of rational herding presents a cautionary note on the scope for successful information aggregation.
Our focus here is not on the amount of information communicated, but on the quality of the decision made, and we demonstrate that it is possible to improve the quality of the decision without increasing the informativeness of the equilibrium, in the sense of Fisher and Stocken.
IN ECONOMIC AND FINANCIAL ENVIRONMENTS in which decision makers have imperfect information about the true state of the world, it can be rational to ignore one’s own private information and make decisions based upon what are believed to be more informative public signals.
Equilibrium Use of Information The equilibrium use of information depends crucially on the private value that agents assign to aligning their choices with those of others.
Therefore, if the theory of asymmetric information alters the assumption of fully informed individuals or if experimental and psychological economists relax the assumption of perfect rationality they generate new fields for the application of neoclassical theory and methods.
A Unique Information-Choice Equilibrium.— If other agents acquire more information, they put more weight on the more precise private sig nals when forming their actions.
Christian Hellwig, Sebastian Kohls , Laura Veldkamp
0.828
Assumption 1 is maintained throughout the remainder of the paper and is necessary to ensure that agents choose to acquire a nonzero quantity of information.
In all these settings, the economic environment is characterized by the presence of underlying uncertainty that is common to everyone, and eliminating such uncertainty can be prohibitively costly, or simply impossible; agents thus learn about such unobserved payoff-relevant states simultaneously as decisions are being made, and the incomplete information they face need not ever fully disappear.
Sec ond, even in the special cases where more informationally efficient equilibria are known to exist,1 the possibility of rational herding presents a cautionary note on the scope for successful information aggregation.
This assumption stems from the need to preserve the theoretical characteristics of rational choices and market efficiency which underestimate the risks and relevance of incomplete information, the complexity of the context, and the subjectivity of a person’s ability to perceive the outside world and to consequently process the information.
Our central economic insight is that the unverifiability of information implies distortions after a player’s information acquisition, but encourages the players to acquire information, thereby reducing delay in information acquisition.
These papers give regions in which there will be over-or underinvestment in information, contingent on a specific mechanism being played.2 Our contribution is complementary and akin to comparative statics between mechanisms.
Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft
Birger Wernerfelt
0.808
In column 5, we present the predictions of our alternative information-seeking equilibrium, discussed in Section 2.4, in the case that information is costless.
The cluster gathers 1846 sentences from our corpus. It represents 1.14% of all the sentences selected over the whole period.
The community exists from 2010 to 2019.
The most recurring authors are Mordecai Kurz (36 sentences), Alp Simsek (35 sentences), Carsten Krabbe Nielsen (31 sentences), Wei Xiong (27 sentences), Emanuela Sciubba (25 sentences), Tarek Coury (25 sentences), Markus K. Brunnermeier (24 sentences), Bruce Preston (21 sentences), George-Marios Angeletos (21 sentences), Stefano Eusepi (21 sentences).
The most recurring journals are Economic Theory (248 sentences), The American Economic Review (218 sentences), Econometrica (161 sentences), The Review of Economic Studies (152 sentences), American Economic Journal: Microeconomics (115 sentences).
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Distribution of sentences over time
Top sentences with ‘rational’ or ‘rationality’ of the cluster
Top sentences (in general) of the cluster’s centroid
Sentence
Title
Year
Journal
Authors
Words Similarity
We therefore consider models with biases in beliefs and non-optimal behavior in addition to a rational expectations model.
As we noted earlier, the rational beliefs assumption does not only play a role in deriving the endogenous properties of the economy and eval uating its performance, but also, and fundamentally, in justifying our assumption of rational agents having diverse beliefs.
Our aim is just to show that pragma tism and economic rationality do not necessarily eliminate informational irrationality and that beliefs heterogeneity is sustainable even in a dynamic setting.
16 Many builders of economic models would reject the possibility of such beliefs on the argument that fully rational agents with the same information should hold the same beliefs about the implications of that information.
While individuals are assumed to have biased beliefs, they are also assumed to have unbiased estimates of the price of irrationality or, to put it another way, they have rational expecta tions about the consequences of irrational action.
For such fully rational individuals, beliefs about expected return proportion may then reflect not just beliefs about others’ trustworthiness but also beliefs about the proportion of less rational players in the population.
We assume that agents are internally rational, in the sense that they formulate their doubts about market outcomes using a consistent set of subjective beliefs about prices and maximize expected utility given this set of in equilibrium in t , and the last equality uses the fact that agents have RE about the processes for aggregate consumptio beliefs.
In a rational belief equilibrium, economic agents hold diverse beliefs about future state variables and these beliefs are aligned with the stationary empirical measure.
In addition, there exists a novel body of theoretical work focused on understanding the role of bounded rationality and nonstandard preferences in the formation of beliefs by economic agents.1 This body of work assumes that individuals learn according to Bayes’s rule, given a possibly incorrect prior belief and possibly sparse new information.
The objective of this paper is the empirical test of Theorem 3 stated below and for that we use only the most basic restrictions the theory of Rational Beliefs imposes.
The primary differ-ii S enee between their study and ours, is that they study the interaction between diverse, possibly misspecified, beliefs, while the present paper studies the interaction between rational and boundedly rational beliefs.
Among the 50 closest sentences to the cluster’s centroid, 16% mention the terms ‘rational’ or ‘rationality’
Sentence
Title
Year
Journal
Authors
Centroid Similarity
In a rational belief equilibrium, economic agents hold diverse beliefs about future state variables and these beliefs are aligned with the stationary empirical measure.
In addition, there exists a novel body of theoretical work focused on understanding the role of bounded rationality and nonstandard preferences in the formation of beliefs by economic agents.1 This body of work assumes that individuals learn according to Bayes’s rule, given a possibly incorrect prior belief and possibly sparse new information.
Introduction Leading equilibrium concepts such as Bayesian Nash equilibrium and rational expectations equilibrium incorporate the idea that agents’ beliefs about future outcomes coincide with the model’s true probabilities.
û Remark 7 Distribution of beliefs We already noted that if all agents hold the same non stationary, rational belief, we cannot say that overconfidence is present, in particular, we cannot say that there is an inefficiency present.
In what follows we drop this very assumption and hypothesize instead that from the agents who do not hold the correct belief , only those whose beliefs are within of the market price continue to use their subjective probabilities.
In this section, I demonstrate this claim as well as illustrate some potential differences that may arise when equilibrium beliefs are subject to this more restrictive refinement.
The Canadian Journal of Economics / Revue canadienne d’Economique
Richard Chisik
0.846
Before introducing our equilibrium definitions, we now characterize the ambiguous beliefs that can arise through the previously described updating procedure.
The first part of the section defines these extremal beliefs equilibria, and discusses the consequences of the restrictions they place on equilibrium beliefs.
In a rational belief equilibrium, economic agents hold diverse beliefs about future state variables and these beliefs are aligned with the stationary empirical measure.
As beliefs play an important role in our argument, we do not want our argument to depend on arbitrary out-of equilibrium beliefs; we therefore impose a strong refinement, namely that they satisfy the D1 criterion.
